<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934, AS AMENDED [FEE REQUIRED]

         For the fiscal year ended December 31, 1998

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934, AS AMENDED [NO FEE REQUIRED]

         For the transition period from               to
                                        -------------    -------------

                        Commission File Number 000-21735

                       CREDIT MANAGEMENT SOLUTIONS, INC.
                       ---------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                                 <C>
               Delaware                                                          52-1549401
               --------                                                          ----------
      (State or Other Jurisdiction of                               (I.R.S. Employer Identification No.)
       Incorporation or Organization)
135 National Business Parkway, Annapolis Junction, MD                              20701
-----------------------------------------------------                              -----
  (Address of Principal Executive Offices)                                       (Zip Code)
</TABLE>

                                 (301) 362-6000
                                 --------------
              (Registrant's Telephone Number, Including Area Code)

          Securities registered pursuant to Section 12(b) of the Act:

                                      None
                                      ----

          Securities registered pursuant to Section 12(g) of the Act:

                              Title of each class
                              -------------------
                         Common Stock, $0.01 par value

                   Name of each exchange on which registered
                   -----------------------------------------
                             Nasdaq National Market

Indicate by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes [ X ]  No [   ]
<PAGE>   2
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [X]

At March 26, 1999, Credit Management Solutions, Inc. had 7,649,770 shares of
Common Stock, par value $0.01, outstanding.

While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that the aggregate market value of
outstanding Common Stock on March 26, 1999 (based upon the average bid and
asked prices of such Common Stock on the Nasdaq National Market on March 26,
1999) held by non-affiliates was approximately $13.1 million.  For this
computation, the registrant has excluded the market value of all shares of its
Common Stock reported as beneficially owned by officers, directors and certain
significant stockholders of the registrant.  Such exclusion shall not be deemed
to constitute an admission that any such stockholder is an affiliate of the
registrant.

                      DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12 and 13 of Part III of this Form 10-K are incorporated by
reference from the registrant's definitive Proxy Statement to be furnished to
stockholders in connection with the 1999 Annual Meeting of Stockholders.  This
Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended, not later than April 30, 1999.





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                                     PART I

Item 1.          Business.

This report contains certain statements of a forward-looking nature relating to
future events or the future financial performance of Credit Management
Solutions, Inc. ("CMSI" or the "Company").  Investors are cautioned that such
statements are only predictors and that actual events or results may differ
materially.  In evaluating such statements, investors should specifically
consider the various factors identified in this Report which could cause actual
results to differ materially from those indicated by such forward-looking
statements, including the matters set forth in "-- Risk Factors."

The Company was incorporated under the laws of the State of Maryland in 1987
and reincorporated under the laws of the State of Delaware in November 1996.
CMSI is a developer and provider of software solutions and services for
automating the consumer and small business credit analysis, decisioning and
funding process.  The Company's products and services allow its customers to
automate the entire credit application process by enabling the rapid
transmission of credit applications to multiple funding sources, expediting
credit application analysis and decisioning and facilitating compliance with
federal and state regulatory requirements.  The Company's core product,
CreditRevue(R), automates the entire credit application process form the entry
of the credit application to the credit decision through the transfer funding
to the lenders servicing system. To further support the needs of the lending
industry, the Company developed CreditConnection(R), which became commercially
available in July 1996.  CreditConnection, a software-based service, links
sources of credit origination through an online network that allows
applications to be transmitted to multiple funding sources and credit decisions
to be delivered back to the point of origin in a matter of minutes.

In February, 1999, the Company introduced its Internet lending solution -
CreditOnline(R) - a service that enables consumers and automobile dealers to
originate indirect auto loans over the World Wide Web.  Designed as a complete
automobile financing solution, CreditOnline harnesses the power of the Internet
to provide dealers with a real-time, online mechanism, to offer their customers
the ability to submit a credit application electronically through the lenders
or dealers web site and forward that application electronically to lenders.

         PRODUCTS AND SERVICES

CreditRevue(R)

CreditRevue is a UNIX-based software solution designed to automate the entire
credit application process from the entry of the credit application to the
credit decision and through the transfer of the funding information to the
lender's servicing system.  Using CreditRevue, a lender can automate the
analysis of a wide range of consumer lending products, including vehicle loans
and leases, home equity loans, student loans, telecommunications services and
credit cards. Before CreditRevue is installed, the Company completes a review
of the customer's credit application processing environment. CreditRevue is
then configured to address the lender's specifications, including the lender's
underwriting, approval and funding processes. The Company designs interfaces to
the lender's other related systems, such as their branch automation software,
customer information repository and loan servicing software.





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The Company markets the following supplemental CreditRevue products:


         -                CreditRevue Student Lending is a specialized version
                 of CreditRevue which, in addition to providing the full
                 functionality of CreditRevue, is configured to support the
                 requirements of the student lending marketplace.

         -                CreditRevue Maestro is a product designed to work in
                 conjunction with a client's existing credit origination order
                 entry system providing complete background credit analysis,
                 decisioning and pricing capabilities based on client defined
                 criteria.  This product is currently in development and is
                 scheduled for delivery in Q2 1999.

         -                CreditRevue Service Bureau, is a product designed to
                 allow lenders to connect multiple terminals or personal
                 computers to a service bureau system in order to access
                 CreditRevue. CreditRevue Service Bureau is designed to be used
                 by small and medium sized financial institutions seeking to
                 minimize the up-front hardware and software costs of an
                 in-house system. The Company intends to pursue strategic
                 marketing alliances with established service bureau providers
                 whereby such providers will be licensed to re-market
                 CreditRevue Service Bureau to their existing clients on a
                 transaction fee basis.  To date the company has entered into
                 alliances with AnyTime Access, Outsource Financial and M&I
                 Services, Inc.

         -                OneScore(TM) is a credit scoring product to assess
                 small businesses. Using advanced statistical techniques, Dun &
                 Bradstreet (D&B) has developed a blended scoring model that
                 permits D&B's comprehensive commercial information to be
                 intelligently combined with information on the principals of
                 the business concerned. The consumer information is provided
                 by independent consumer bureaus to help customers better
                 assess credit risks in dealings with smaller businesses. The
                 Company uses its proprietary credit processing system to
                 implement the D&B model on behalf of D&B's customers. This is
                 a transaction fee oriented service for which the Company
                 receives a fee for each OneScore generated by a D&B client.

         -                Dun & Bradstreet Portfolio Monitoring Service allows
                 businesses to proactively manage individual small business
                 credit relationships, automate various credit analyses and
                 reporting functions, and effectively seize cross-sales
                 opportunities.  The service is based on Dun & Bradstreet's
                 standard and custom credit scoring services and the Company's
                 data integration and systems capabilities.  The service offers
                 standard and custom management reports and can forward
                 processed portfolio accounts to a customer's internal data
                 warehouse.  The standard monitoring service uses OneScore(TM).
                 Customers can also use custom scorecards to process their
                 internal account performance data with external commercial
                 and/or consumer data.  The advanced statistical scorecard
                 provides a business with a personalized view of the changing
                 risk profiles in its small business portfolio.  This is a
                 transaction fee oriented service for which the Company
                 receives fees based upon the number of small business accounts
                 monitored, the monitoring frequency and the amount of custom
                 development work selected.





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The Company previously marketed a version of CreditRevue referred to as
CreditRevue 2000(TM).  This version was designed to allow the software to be
configured without extensive coding and at one time was targeted as a possible
replacement for the Company's traditional CreditRevue offering.  Due to the
extensive flexibility designed into the product, the resulting performance
characteristics could not surpass the traditionally custom designed CreditRevue
systems. CreditRevue 2000 is the ideal platform for supporting the Company's
CreditRevue Service Bureau offering.  At this time, CreditRevue 2000 will only
be offered to CreditRevue Service bureau alliance partners as the CreditRevue
Service Bureau software.


CreditConnection(R)

The CreditConnection service and network offers connectivity between points of
credit origination, such as automobile dealers, and multiple funding sources.
The CreditConnection service allows a dealer to enter a credit application for
a consumer loan or lease.  The dealer can request one or more credit bureaus
which can then be reviewed in several different formats. The dealer can select
one or more lending institutions to which the credit application should be sent
and can specify criteria which determines how the application is to be
sequenced and automatically forwarded to secondary sources (e.g., if the first
lending institution does not respond within 10 minutes). The dealer can then
view the lenders' credit decisions online. If the lending institution supports
automated funding, the dealer can have the funds for the loan transferred to
the dealer's bank account without having to wait for the actual contract to
arrive at the funding source. CreditConnection provides several other features
to dealerships, including workflow management tools, payment calculator and
broadcast news from participating funding sources.  For the funding source,
CreditConnection provides a single interface to communicate with any number and
type of credit originator.

The Company's agreements with each lending institution that subscribes to the
CreditConnection service include a provision that the Company and the lending
institution develop and implement a marketing plan describing how the lending
institution will utilize its sales force to increase dealership subscriptions
to the CreditConnection service. The Company also has been pursuing remarketing
arrangements for the CreditConnection service with vendors that provide
automated systems for dealership management and operations.  The Company has
signed agreements to form strategic alliances with the Dealer Service Group of
ADP and Universal Computer Systems (UCS) to remarket CreditConnection.  The
agreements with ADP and UCS provide that such parties offer the
CreditConnection service as their standard approach to establishing electronic
interfaces between dealerships and financial institutions. Under certain
limited circumstances, ADP and UCS may provide an interface which is different
from the Company's. It is the Company's understanding that ADP and UCS do not
currently remarket any third party products or services which compete with the
CreditConnection service. See "-- Sales and Marketing."

The Company's agreements with lending institutions that are licensees of
CreditRevue typically require that the CreditConnection service be utilized as
the exclusive interface between CreditRevue software and applications
transmitted electronically from third parties through technology which permits
the credit application to be transmitted to multiple lenders. The ability of
CreditConnection lending institutions that are not CreditRevue licensees to
receive applications transmitted electronically from





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<PAGE>   6
                                                                  


third parties by means other than the CreditConnection service is not similarly
restricted.


The Company is also marketing CreditConnection LenderLink(TM), which
facilitates the electronic transfer of credit applications and decisions
between lending institutions through the CreditConnection network. Using
CreditConnection LenderLink, a prime lender can automatically forward credit
applications which it has declined to a sub-prime lender. The sub-prime lender
can then return a decision electronically to the prime lender, which then
communicates the decision to the credit originator. CreditConnection LenderLink
benefits all three parties, the credit originator, the prime lender and the
sub-prime lender. The credit originator gets a higher rate of approvals since
applications declined by the prime lender have additional opportunities to be
approved. The prime lender gets a referral fee from the sub-prime lender, and
the sub-prime lender gets a source for additional customers. Additionally, the
Company receives a transaction-based fee for each application transmitted to a
sub-prime lender using CreditConnection LenderLink.

The version of the CreditConnection software for Microsoft Corporation's
Windows operating system is a graphical, client/server version of the dealer
software that connects to the CreditConnection host using the Internet or a
private network. This new software is designed to reduce communication costs
and provides easier deployment, an improved user interface and additional
functionality.  The CreditConnection software for Microsoft Corporation's
Windows operating system became commercially available in 1997.

CreditOnline(R)

In February, 1999, the Company introduced CreditOnline, its Internet lending
solution.  It has long been a part of the Company's E-commerce strategy to
leverage its CreditConnection network to allow consumers to apply for loans
with CreditConnection lenders over the Internet.  Prior to CreditOnline, the
Company introduced CreditConnection Online.

Through its CreditConnection service the Company has established a standard
portal to the credit origination systems of many leading lending institutions.
This connectivity enables the Company to offer a comprehensive Internet
strategy for online financing designed to service three types of clients -
lenders, dealers, and consumers.

-   In the Lender Centric model consumers would typically apply for credit
    using the lender's Web site.  In this model the lender directly controls
    the loan process.  The fees for this service are both transaction and
    license fee based.

-   In the Dealer & Vehicle Aggregator Centric model consumers would typically
    apply for credit via the dealer or aggregators' Web site.  In this model
    the dealer and/or the aggregator controls the loan process.  The Company is
    in effect viewed as the gateway and portal between the dealers/vehicle
    aggregators and lenders.  In this model, both the dealer and lender pay
    transaction and/or subscription fees.

-   In the Consumer Centric model the consumer is in control of the process.
    Unlike other online





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    financing options, which usually provide consumers with an offer from only
    one lender, consumers can receive multiple offers within minutes using the
    CMSI technology and network.  Under this model, the lender pays a
    transaction fee as well as a fee on a closed loan basis.  Dealers enrolled
    in this model may pay a lead generation fee to receive qualified consumers
    and a subscription fee for CreditConnection.




CreditConnection Online, originally developed in 1997, was used initially to
originate automobile loans from ADP's AutoConnect(TM) Web site and forward
those loans to NationsBank through CreditConnection.  Following the initial
development and pilot market test, CreditConnection Online re-engineered to
support multiple lenders using browser development technology resulting in the
new CreditOnline Service.

         CUSTOMERS

The Company's customers are categorized by product type.  With respect to the
CreditRevue product, the Company has over 35 customers, including banks,
savings and loan associations, finance companies, sub-prime lenders, leasing
companies, student lenders and a telecommunications company. The Company
intends to continue to focus on the financial services industry and to target
the student lending, insurance, telecommunications, utilities and healthcare
industries.  With regards to its CreditConnection service, at December 31, 1998
the Company had contractual relationships with 27 lenders.  The Company has
developed electronic connections linking 21 financial institutions to the
CreditConnection service.  The Company's alliance with Dun & Bradstreet has
resulted in 292 customers for the OneScore service and 2 customers for the
Portfolio Monitoring service as of December 31, 1998.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of those customers who have accounted for 10% or
more of the Company's revenues in any of the past three years.

         PRODUCT DEVELOPMENT

Since its inception, the Company has made substantial investments in product
development and has a dedicated product development organization which
periodically releases new products and enhancements to existing products. The
Company believes that its future performance will depend in large part on the
Company's ability to enhance its current products and services and to develop
new products on a timely and cost-effective basis that will keep pace with
technological developments and evolving industry standards, as well as address
the increasingly sophisticated needs of the Company's customers.  While the
Company anticipates that certain new products and services will be developed
internally, the Company may, based on timing and cost considerations, acquire
or license technology or software from third parties when appropriate.  For a
discussion of certain risks associated with the Company's product development
program, see "- Risk Factors - Rapid Technological Change; Risk Associated with
New Products, Services or Enhancements" and "- Risk Factors - Risk of Defects,
Development Delays and Lack of Market Acceptance."

As of December 31, 1998, the Company's product development staff consisted of
27 employees. The





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Company anticipates that it will continue to commit resources to product
development in the future.

         CUSTOMER SERVICE AND SUPPORT

The Company believes that its success is dependent in part upon its ability to
provide customers with responsive, prompt and efficient support and training.
Each customer has a maintenance agreement, which is typically coterminous with
the license agreement, providing for service, support and product enhancements.
The Company offers its clients a wide range of support services to assist them
in deriving the most effective use of the Company's products and services,
including technical support, formalized training and a user hotline. The
Company's services also include implementation planning and assistance,
software installation, software operations training and software maintenance.

As of December 31, 1998, the Company's dedicated customer service and support
team included 21 employees. CMSI's support personnel are available to its
customers 24 hours a day, seven days a week through a hotline. The Company
tracks each customer's service history to identify trends or problem areas and
to recommend solution strategies. Most customer support questions are answered
during the initial call. The Company can access a customer's system through a
modem to diagnose the situation and implement corrective measures, if
necessary. The Company also makes on-site visits for emergency or serious
problem situations.

The Company believes that its customers typically base their decisions to
purchase the Company's products and services partly on the support and
maintenance offered with such products and services. The Company intends to
continue to strengthen its support team and reputation by adding professional
personnel with significant experience in the financial services and software
industries.

         SALES AND MARKETING

As of December 31, 1998, the Company's sales and marketing organization
consisted of 21 employees,  17 of whom are based at the Company's corporate
headquarters in Annapolis Junction, Maryland. To support its sales force, the
Company conducts comprehensive marketing programs, which include direct mail,
public relations, seminars, trade shows and ongoing customer communications
programs.  The Company also sponsors an annual users' group meeting for its
CreditRevue customers.

The Company sells its CreditRevue products through a direct sales organization.
The sales cycle begins with the generation of a sales lead or the receipt of a
request for proposals from a prospective customer. While the sales cycle varies
substantially from customer to customer, it typically requires six to eight
months.

The sales effort for CreditConnection comprises both direct and indirect
marketing activities. Direct sales efforts are conducted by a direct sales
organization and are concentrated on selling the service to financial
institutions, automobile superstores, independent dealerships, and finance and
insurance systems providers. Direct sales efforts are supported by
participation in both financial and automotive trade shows and conferences,
financial press relations, telemarketing, advertising campaigns and targeted
mailings. The Company also supports the indirect sales efforts of the sales
organizations of certain financial institutions which have well-established
relationships with many of the automobile dealerships in the United States. The
Company supports its indirect sales channels through a variety of marketing
communications efforts including the development of brochures and direct mail
pieces, production of sales videos, participation in trade shows and
conferences, support for bank dealer focus





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groups, advertising, press relations and seminar support.

In November 1996, the Company entered into an agreement to form a strategic
alliance with the Dealer Services Group of ADP. Under the terms of the
agreement, the Company and ADP have agreed to integrate CreditConnection with
ADP's automated dealership management and operations systems so that ADP can
remarket and license CreditConnection to ADP's automobile dealer customers. In
exchange for its services, ADP is entitled to a percentage of the net revenues
from transactions generated by ADP's dealers. In addition, pursuant to the
agreement, ADP has the right to name one director to the Company's Board of
Directors. In August 1997, the Company entered into an agreement to form a
strategic alliance with Universal Computer Systems, Inc. ("UCS") whereby UCS
can remarket and license CreditConnection to UCS's automobile dealer customers.
While the Company has also initiated discussions with other dealer system
vendors and intends to establish relationships with such vendors to expand the
market presence of CreditConnection, no such additional relationships have been
finalized.

         BACKLOG

At December 31, 1998, the Company had entered into contracts for its services
for which $2.5 million of revenues will be recognized in future periods.  At
December 31, 1997, the comparable amount was $4.3 million.

         COMPETITION

The credit processing software and services industry is intensely competitive
and rapidly changing. The Company believes its ability to compete depends upon
many factors within and outside its control, including the timing and market
acceptance of new products and services and enhancements developed by the
Company and its competitors, including (i) application software companies, (ii)
management information systems departments of potential customers, (iii)
third-party professional services organizations, and (iv) computer services
outsourcing providers which offer service bureau-based credit processing
solutions. Competitors for CreditRevue include American Management Systems,
Inc., Appro Systems, Inc., CFI ProServices, Inc., Fair, Isaac and Company,
Inc., Affinity Technology Group, Inc and Corporate Solutions International,
Inc. While at the outset of 1997 The Reynolds & Reynolds Company ("Reynolds"),
and International Business Machines Corporation ("IBM"), each separately
marketed solutions competitive with the CreditConnection, it is not clear that
either Reynolds or IBM is continuing or plans to continue marketing these
solutions.  Many of the Company's competitors are substantially larger than the
Company and have significantly greater financial, technical and marketing
resources and established, extensive direct and indirect channels of
distribution. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products and
services than the Company.

As is typical in the software industry, many actual or potential customers of
the Company may become competitors by developing competitive technology
internally. Due to the relatively low barriers to entry in the software market,
the Company expects additional competition from other established and emerging
companies as the credit processing software market continues to develop and
expand. The Company also expects that competition will increase as a result of
software industry consolidations. The Company anticipates that its competitors
may develop or acquire products or services that provide functionality that is
similar to that produced by the Company's products and services, and that such





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products and services may be offered at a significantly lower price or bundled
with other products and services. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.

Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which would have a material adverse
effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures will not have a material adverse effect on the Company's business,
results of operations and financial condition.

         INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success is heavily dependent upon its proprietary technology. The
Company regards its software products and services as proprietary, and relies
primarily on a combination of copyright protection, and patent protection,
trade secrets protection, confidentiality agreements and contractual provisions
to protect its proprietary rights. The Company has no patents on its
CreditRevue products currently in commercial use, and existing trade secrets,
copyright laws and contractual provisions afford only limited protection. In
March of 1999, the U.S. Patent and Trademark Office issued the Company U.S.
Patent 5,878,403 on the technology supporting its CreditConnection service.
There can be no assurance this patent would survive a legal challenge to its
validity or provide adequate protection.  Furthermore, there can be no
assurance that others will not design around any patents issued to the Company.

It is the Company's policy to enter into confidentiality and assignment
agreements with its employees. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use the Company's products or technology without authorization, to
obtain and use information that the Company regards as proprietary, or to
develop similar or superior products or technology independently. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem,
particularly in international markets and as a result of the growing use of the
Internet. The source code for the Company's proprietary software is protected
both as a trade secret and as a copyrighted work. The Company has in the past
and may in the future make source code for one or more of its products
available to certain of its customers and strategic partners which may increase
the likelihood of misappropriation or other misuse of the Company's software.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies.

"CreditRevue," "CreditConnection", and "INCredit" and "CreditOnline" are
registered trademarks of the Company. "CrossSell," "CreditRevue Service
Bureau," "CreditRevue Student Lending," "CreditRevue Data Server," "CreditRevue
Maestro," "CreditConnection Online," "CreditConnection LenderLink",
"CreditOnline" and the Company logo are trademarks or registered tradenames of
the Company.  The Company is not aware that any of its products, services,
trademarks or other proprietary rights infringes the proprietary rights of
third parties. However, there can be no assurance




                                      -10-
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that third parties will not assert infringement claims against the Company in
the future with respect to current or future products or services. As the number
of software products and services in the industry increases and the
functionality of these products and services further overlaps, the Company
believes that software developers may become increasingly subject to
infringement claims. Furthermore, there can be no assurance that former
employers of the Company's present and future employees will not assert claims
that such employees have improperly disclosed confidential or proprietary
information to the Company. Any such claims, with or without merit, can be time
consuming and expensive to defend, cause product and service delays, or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, or at all, which could have a material adverse effect on the
Company's business, results of operations and financial condition.

         EMPLOYEES

As of December 31, 1998, the Company had 205 full time employees, including 27
in product development, 114 in technical operations, 21 in sales and marketing
and 22 in finance and administration. The Company's employees are not covered
by any collective bargaining agreements. The Company has experienced no work
stoppages and believes that its relations with its employees are good.




         RISK FACTORS

Uncertainty of Future Results of Operations; Fluctuations in Quarterly Results
of Operations

Prior growth rates in the Company's revenue and net income should not be
considered indicative of future results of operations.  Future results of
operations will depend upon many factors, including market acceptance of new
services, including the Company's CreditConnection, CreditRevue Service Bureau,
CreditRevue Maestro and CreditOnline products, the demand for the Company's
products and services, the success of the Company's relationships with third
party remarketers of CreditConnection, the successful transition from
predominantly license fee-based revenue to predominantly transaction fee-based
revenue, the timing of new product and service introductions and software
enhancements by the Company or its competitors, the level of product, service
and price competition, the length of the Company's sales cycle, the size and
timing of individual transactions, the delay or deferral of customer
implementations, the Company's success in expanding its customer support
organization, direct sales force and indirect distribution channels, the nature
and timing of significant marketing programs, the mix of products and services
sold, the timing of new hires, the ability of the Company to develop and market
new products and services and control costs, competitive conditions in the
industry and general economic conditions.  In addition, the decision to
implement the Company's products or services typically involves a significant
commitment of customer resources and is subject to the budget cycles of the
Company's customers.  Licenses of CreditRevue generally reflect a relatively
high amount of revenue per order.  The loss, cancellation or delay of
individual orders, therefore, would have a significant impact on the Company's
revenue and quarterly results of operations. The timing of revenue is difficult
to predict because of the length and variability of the Company's sales cycle,
which has ranged to date from two to 18 months from initial customer contact to
the execution of a license agreement. In addition, since a substantial portion
of the Company's revenue is recognized on a





                                      -11-
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percentage-of-completion basis, the timing of revenue recognition for its
licenses may be materially and adversely affected by delays or deferrals of
customer implementations. Such delays or deferrals may also increase expenses
associated with such implementations which would materially and adversely
affect related operating margins. The Company's operating expenses are based in
part on planned product and service introductions and anticipated revenue
trends and, because a high percentage of these expenses are relatively fixed, a
delay in the recognition of revenue from a limited number of transactions could
cause significant variations in operating results from quarter-to-quarter and
could result in operating losses. To the extent such expenses precede, or are
not subsequently followed by, increased revenues, the Company's results of
operations would be materially and adversely affected. As a result of these and
other factors, revenues for any quarter are subject to significant variation,
and the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. There can be no assurance that the Company
will be profitable in any future quarter or that such fluctuations in results
of operations will not result in volatility in the price of the Company's
Common Stock. Due to all of the foregoing factors, it is likely that in some
future quarter the Company's results of operations will be below the
expectations of public market analysts and investors. In such event, the market
price of the Company's Common Stock will be materially and adversely affected.
See "-- Market Acceptance of Credit Connection; Transition to Transaction-Based
Revenue" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Information."

Dependence on CreditRevue Product Line

License fees, maintenance fees and third-party computer hardware sales
associated with licenses and installations of CreditRevue accounted for
substantially all of the Company's revenues through December 31, 1998. Although
the Company introduced its CreditConnection service in the fourth quarter of
1996, its Dun & Bradstreet OneScore Service in the fourth quarter of 1997, and
its CreditRevue Service Bureau in January 1998, the Company expects that
revenues generated from licenses and installations of CreditRevue will continue
to account for a significant portion of the Company's revenues for the
foreseeable future. The life cycles of the Company's products and services are
difficult to predict due to the effect of new product and service introductions
or software enhancements by the Company or its competitors, market acceptance
of new and enhanced versions of the Company's products and services, and
competition in the Company's marketplace. A decline in the demand for
CreditRevue, whether as a result of competition, technological change, price
reductions or otherwise, would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."





                                      -12-
<PAGE>   13
                                                                  



Lengthy Sales and Implementation Cycle

The licensing of the Company's software products and services is often an
enterprise-wide decision by prospective customers and generally requires the
Company to provide a significant level of education to prospective customers
regarding the use and benefits of the Company's products and services. In
addition, the implementation of the Company's software products involves a
significant commitment of resources by prospective customers and is commonly
accompanied by substantial reengineering efforts and a review of the customer's
credit analysis, decisioning and funding processes. The cost to the customer of
the Company's products and services is typically only a portion of the related
hardware, software, development, training and integration costs associated with
implementing a large-scale automated credit origination information system. For
these and other reasons, the period between initial customer contact and the
implementation of the Company's products is often lengthy (ranging from between
two and 18 months) and is subject to a number of significant delays over which
the Company has little or no control. The Company's implementation cycle could
be lengthened by increases in the size and complexity of its license
transactions and by delays or deferrals in its customers' implementation of
appropriate interfaces and networking capabilities. Delays in the sale or
implementation of a limited number of license transactions could have a
material adverse effect on the Company's business, results of operations and
financial condition and cause the Company's results of operations to vary
significantly from quarter to quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Market Acceptance of CreditConnection; Transition to Transaction-Based Revenue

The Company's CreditConnection service was commercially introduced in 1996, the
Company's CreditOnline service was introduced in February, 1999, and the
Company's CreditRevue Service Bureau service was commercially introduced
through strategic alliance partner, AnyTime Access, in January, 1998.  The
CreditConnection service, the CreditOnline service and the CreditRevue Service
Bureau service (as provided by AnyTime Access and other third parties to which
the Company licenses the CreditRevue Service Bureau) are projected to account
for a significant portion of the Company's revenues in the future. As a result,
demand and market acceptance for these services are subject to a high level of
uncertainty, and the Company will be heavily dependent on their market
acceptance. There can be no assurance that these services will be commercially
successful. The failure of the Company to generate demand for CreditConnection,
CreditOnline or CreditRevue Service Bureau or the occurrence of any significant
technological problems with such services would have a material adverse effect
on the Company's business, results of operations and financial condition.
Historically, virtually all of the Company's revenues have been derived from
license fees, maintenance fees and hardware sales associated with licenses and
installations of CreditRevue. Under the terms of its license agreements, a
majority of the Company's revenues are realized during the configuration and
installation of CreditRevue. However, the Company anticipates that a
significant portion of the Company's future revenues will be derived from
per-usage transaction-based fees and subscription fees charged to credit
originators and financial institutions for transactions originated through the
CreditConnection, CreditOnline and CreditRevue Service Bureau services. There
can be no assurance that the Company will successfully manage the transition of
a significant portion of its revenues from license-based revenue to
transaction-based revenue. The failure of the Company to successfully manage
the transition to a transaction-based revenue stream would have a material
adverse effect on the Company's business, results of operations and financial
condition.





                                      -13-
<PAGE>   14
                                                                  



Reliance on Certain Relationships

The Company has established relationships with a number of companies that it
believes are important to its sales, marketing and support activities, as well
as to its product, service and software development efforts. The Company has
relationships with automated scorecard companies, hardware vendors and credit
bureaus. There can be no assurance that these relationships will be successful
on an on-going basis.  Moreover, there can be no assurance that these
companies, most of which have significantly greater financial and marketing
resources than the Company, will not develop or market products and services
which will compete with the Company's products and services in the future.
Furthermore, since many of these relationships are informal in nature, they are
terminable by either party at will. Other relationships are terminable by
either party after a relatively short notice period. There can be no assurance
that these companies will not otherwise discontinue their relationships with or
support of the Company. The failure by the Company to leverage and maintain its
existing relationships or to establish new relationships in the future, because
of a divergence of interests, acquisition of one or more of these third parties
or other reasons could have a material adverse effect on the Company's
business, results of operations and financial condition. See "-- Sales and
Marketing."

In addition, the Company has formed strategic alliances with ADP and UCS for
remarketing CreditConnection and with D&B for the marketing of OneScore. There
can be no assurance that these relationships will be successful.  Moreover,
there can be no assurance that these companies will actively remarket
CreditConnection or OneScore. The failure by the Company to leverage and
maintain its existing relationships with ADP, UCS and D&B, or to establish new
relationships in the future, because of a divergence of interests, acquisition
of one or more of these third parties or other reasons, could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "-- Sales and Marketing."

Dependence on Large License Fee Contracts and Customer Concentration

A relatively small number of customers have accounted for a significant
percentage of the Company's revenues. License fees for CreditRevue are based on
a percentage-of-completion method on a cost-incurred basis with the final
installment being paid in full upon acceptance of the Company's software. The
Company receives continuing revenues on CreditRevue from annual maintenance
agreements which commence upon acceptance of the software by the customer.
Maintenance agreements are renewable annually by the customer, and the license
agreements are co-terminous with the maintenance agreements. Although the
Company has experienced a high degree of customer loyalty, the Company cannot
predict how many maintenance agreements will be renewed or the number of years
of renewal. Revenues generated by the Company's 10 largest customers accounted
for 55.4% and 48.8% of total revenues in 1998 and 1997, respectively. The
Company expects that a limited number of customers will continue to account for
a significant percentage of revenue for the foreseeable future. The loss of any
major customer or any reduction or delay in orders by any such customer, delay
or deferral in configurations or enhancements by such customers, termination of
orders by any such customer, or the failure of the Company to successfully
market its products or services to new customers, could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Dependence on Consumer Retail Lending Industry; Cyclical Nature of Consumer
Lending





                                      -14-
<PAGE>   15
                                                                  



The Company's business is currently concentrated in the consumer lending
industry and is expected to be so concentrated for the foreseeable future,
thereby making the Company susceptible to a downturn in the consumer lending
industry. For example, a decrease in consumer lending could result in a smaller
overall market for the Company's products and services. Furthermore, banks in
the United States are continuing to consolidate, decreasing the overall
potential number of customers for the Company's products and services. In
addition, demand for consumer loans has been historically cyclical, in large
part based on general economic conditions and cycles in overall consumer
indebtedness levels. Changes in general economic conditions that adversely
affect the demand for consumer loans, the willingness of financial institutions
to provide funds for such loans, changes in interest rates and the overall
consumer indebtedness level, as well as other factors affecting the consumer
lending industry, could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Management of Changing Business

The Company has experienced significant changes in its business, including
changes in the Company's staff and customer base and the development of new
products, services and enhancements to its software, including the commercial
release of CreditConnection in 1996. Such changes have placed and may continue
to place a significant strain upon the Company's management, systems and
resources.  The Company's ability to compete effectively and to manage future
changes will require the Company to continue to improve its financial and
management controls, reporting systems and procedures, budgeting and
forecasting capabilities on a timely basis, expand its sales and marketing work
force and train and manage its employee work force. There can be no assurance
that the Company, or the Company's current management, will be able to manage
such changes successfully. The Company's failure to do so could have a material
adverse effect upon the Company's business, results of operations and financial
condition. See "-- Sales and Marketing."

Dependence on Key Personnel

The Company's future performance depends in significant part upon the continued
service of its key technical, sales and senior management personnel,
particularly James R. DeFrancesco, Chairman and Chief Executive Officer, Peter
M. Leger, President and Chief Operating Officer and Scott L. Freiman, Executive
Vice President.  The Company has obtained key-person life insurance on the
lives of each of Messrs. DeFrancesco and Freiman although the Company does not
believe that such insurance is adequate to compensate for the loss of either
executive.  The loss of the services of one or more of the Company's executive
officers could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company retains its key
employees through the use of equity incentive programs, including stock option
plans, employee stock purchase plans, and competitive compensation packages.
Except with respect to Mr. Leger, the Company has no employment agreements and
does not intend to enter into any additional agreements in the foreseeable
future. The Company's future success also depends on its continuing ability to
attract and retain highly qualified managerial, sales, technical, and customer
support personnel. In particular, the Company has encountered difficulties in
hiring sufficient numbers of programmers and technical personnel. Competition
for qualified personnel is intense, and there can be no assurance that the
Company will be able to retain its key technical, sales and managerial
employees or that it can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel in the future.





                                      -15-
<PAGE>   16
                                                                  



Rapid Technological Change; Risk Associated with New Products, Services or
Enhancements

The credit processing software products and services industry in which the
Company competes is characterized by rapid technological change, frequent
introductions of new products and services, changes in customer demands and
evolving industry standards. The introduction or announcement of new products,
services or enhancements by the Company or one or more of its competitors
embodying new technologies or changes in industry standards or customer
requirements could render the Company's existing products or services obsolete
or unmarketable. Accordingly, the life cycles of the Company's products are
difficult to estimate. The Company's future results of operations will depend,
in part, upon its ability to enhance its products and services and to develop
and introduce new products and services on a timely and cost-effective basis
that will keep pace with technological developments and evolving industry
standards, as well as address the increasingly sophisticated needs of the
Company's customers.  The Company has in the past and may in the future
experience significant delays in product development. There can be no assurance
that these new products and services, if developed, will gain market acceptance
or that the Company will be successful in developing and marketing new products
or services that respond to technological change, evolving industry standards
and changing customer requirements, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products or services, or that its new
products or services will adequately meet the requirements of the marketplace
and achieve any significant degree of market acceptance. In addition, a
majority of the Company's current products operate in the UNIX operating
system.  Although the Company's software is designed to work with other
operating environments, a requirement to port to a different operating system
could be costly and time consuming and could have a material adverse effect on
the Company's business, results of operations and financial condition. Failure
of the Company to develop and introduce, for technological or other reasons,
new products and services in a timely and cost-effective manner could have a
material adverse effect on the Company's business, results of operations and
financial condition. Furthermore, the introduction or announcement of new
product or service offerings or enhancements by the Company or the Company's
competitors may cause customers to defer or forgo purchases of the Company's
products or services, which could have a material adverse effect on the
Company's business, results of operations and financial condition.  See "--
Product Development."

System Interruption and Security Risks; Potential Liability; Possible Lack of
Adequate Insurance; and System Inadequacy

The Company's operations are dependent, in part, on its ability to protect its
system from interruption by damage from fire, earthquake, power loss,
telecommunication failure, unauthorized entry or other events beyond the
Company's control.  The Company's computer equipment constituting its central
computer system, including its processing operations, is located at a single
site. The Company is currently in the process of acquiring and implementing a
back-up, off-site processing system capable of fully supporting its operations
in the event of system failure. During 1997, the Company implemented a limited
redundant data center.  The Company relocated operations to new leased
facilities in Annapolis Junction, MD in late 1998.  The new facilities, which
include a state of the art data center, will become the primary production
center for the Company's data processing needs.  The Company also renewed its
lease on its former data center located in Columbia, Maryland.  This former
center will, during 1999, become a back-up center capable of fully supporting
operations in the event of failure of the new production center. Prior to full
implementation of the new facility and the back up facility, the





                                      -16-
<PAGE>   17
                                                                  


Company's operations are subject to substantial risks, including temporary
interruptions resulting from damage caused by any one or more of the foregoing
factors or due to other causes including computer viruses, hackers or similar
disruptive problems. While the Company maintains $1.6 million of property
insurance coverage, business interruption insurance coverage, $2.0 million of
errors and omissions insurance coverage and $10.0 million of umbrella insurance
coverage, such insurance may not be adequate to compensate the Company for all
losses that may occur or to provide for costs associated with system failure or
business interruption. Any damage or failure that causes interruptions in the
Company's operations could have a material adverse effect on the Company's
business, results of operations and financial condition.

Persistent problems continue to affect public and private data networks. For
example, in a number of networks, hackers have bypassed firewalls and have
appropriated confidential information. Such computer break-ins and other
disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the parties utilizing the Company's
services, which may result in significant liability to the Company and also may
deter potential customers from using the Company's services. In addition, while
the Company attempts to be careful with respect to the employees it hires and
maintain controls through software design and security systems to prevent
unauthorized employee access, it is possible that, despite such safeguards, an
employee of the Company could obtain access, which would also expose the
Company to a risk of loss or litigation and possible liability to users. The
Company attempts to limit its liability to customers, including liability
arising from the failure of the security features contained in the Company's
system and services, through contractual provisions. However, there can be no
assurance that such limitations will be enforceable. There can be no guarantee
that the growth of the Company's customer base will not strain or exceed the
capacity of its computer and telecommunications systems and lead to
degradations in performance or system failure. Any damage, failure or delay
that causes interruptions in the Company's operations could have a material
adverse effect on the Company's business, results of operations and financial
condition.

Risk of Defects, Development Delays and Lack of Market Acceptance

Software products and services as sophisticated as those offered by the Company
often encounter development delays and may contain defects or failures when
introduced or when new versions are released. The Company has in the past and
may in the future experience significant delays in the development of software
and has discovered, and may in the future discover, software defects in certain
of its products. Such delays and defects may result in lost revenues during the
time corrective measures are being taken and may result in additional
development costs. Although the Company has not experienced material adverse
effects resulting from any such defects to date, there can be no assurance
that, despite testing by the Company, errors will not be found in its existing
software or in future releases or enhancements.  The Company may continue to
experience development delays, resulting in delays in the commercial release of
new products and services, the loss of market share or the failure to achieve
market acceptance. Any such occurrence could have a material adverse effect
upon the Company's business, results of operations and financial condition. See
"-- Products and Services" and "-- Product Development."

Future Capital Needs; Uncertainty of Additional Financing

The Company currently anticipates that its available cash resources combined
with anticipated funds from operations and its bank line of credit will be
sufficient to meet its presently anticipated working





                                      -17-
<PAGE>   18
                                                                  


capital and capital expenditure and debt repayment requirements through 1999.
Thereafter, the Company may need to raise additional funds. The Company may
need to raise additional funds sooner in order to fund more rapid expansion, to
develop new or enhanced products and services, to respond to competitive
pressures or to acquire complimentary businesses or technologies. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of the stockholders of the Company will be reduced, stockholders may
experience additional dilution, or such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's
Common Stock. There can be no assurance that additional financing will be
available when needed on terms favorable to the Company or at all. If adequate
funds are not available or are not available on acceptable terms, the Company
may be unable to develop or enhance its products and services, take advantage
of future opportunities or respond to competitive pressures, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

Government Regulation and Uncertainties of Future Regulation

The Company's current and prospective customers, which consist of state and
federally chartered banks, savings and loan associations, credit unions,
consumer finance companies and other consumer lenders, as well as customers in
the industries that the Company may target in the future, operate in markets
that are subject to extensive and complex federal and state regulations. While
the Company may not itself be directly subject to such regulations, the
Company's products and services must be designed to work within the extensive
and evolving regulatory constraints in which its customers operate. These
constraints include federal and state truth-in-lending disclosure rules, state
usury laws, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and
the Community Reinvestment Act. Furthermore, some consumer groups have
expressed concern regarding the privacy and security of automated credit
processing, the use of automated credit scoring tools in credit underwriting
and whether electronic lending is a desirable technological development in
light of the current level of consumer debt. The failure by the Company's
products and services to support customers' compliance with current regulations
and to address changes in customers' regulatory environment, or to adapt to
such changes in an efficient and cost-effective manner, could have a material
adverse effect on the Company's business, results of operations and financial
condition.

Year 2000 Issue

The Year 2000 issue is a result of computer programs which store or process date
-related information using only two digits to represent the year.  These 
programs may not be able to properly distinguish between a year in the 1900's 
and a year in the 2000's.  Failure of these programs to distinguish between the 
two centuries could cause the programs to yield erroneous results or even to 
fail.  See "Management's Discussion and Analysis of Financial Condition - Year 
2000 Compliance."

Control by Existing Stockholders

Assuming no exercise of outstanding options, James R. DeFrancesco, the
Company's President and Chief Executive Officer, and Scott L.  Freiman, the
Company's Executive Vice President, collectively beneficially own approximately
60% of the outstanding shares of Common Stock. As a result, these stockholders
will be able to exercise control over matters requiring stockholder approval,
including the election of directors, and the approval of mergers,
consolidations and sales of all or substantially all of the assets of the
Company. This may prevent or discourage tender offers for the Company's Common
Stock unless the terms are approved by such stockholders.

Possible Volatility of Stock Price





                                      -18-
<PAGE>   19
                                                                  



The trading price of the Company's Common Stock has in the past and may in the
future be subject to significant fluctuations in response to variations in
quarterly operating results, changes in earning estimates by analysts, the gain
or loss of significant orders, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
consumer lending and software industries, credit processing software and
services, and other events or factors. In addition, the stock market in general
has experienced extreme price and volume fluctuations which have affected the
market price for many companies in industries similar to or related to that of
the Company and which have been unrelated to the operating performance of these
companies. These market fluctuations may adversely affect the market price of
the Company's Common Stock.

Effect of Certain Charter Provisions; Antitakeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law

The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of those shares, without
any further vote or action by the stockholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those of
the Common Stock. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. Further, certain
provisions of the Company's Certificate of Incorporation, including provisions
that create a classified Board of Directors, and certain provisions of the
Company's Bylaws and of Delaware law could delay or make more difficult a
merger, tender offer or proxy contest involving the Company.

Item 2.          Properties.

The Company's principal executive offices are located in Annapolis Junction,
Maryland in a leased facility consisting of approximately 71,000 square feet of
office space under lease that expires in 2008. The Company additionally has the
right to either one five-year or one three-year renewal option.  The Company
has a right of first refusal on additional office space in the same building.
The Company previously occupied approximately 55,000 square feet of office
space in Columbia, Maryland under several leases that expire in 2002.  As of
December 31, 1998, the Company remained liable for approximately 20,000 square
feet of the 55,000 square feet previously occupied.  The Company is actively
attempting to sublet the remaining former space, but no assurance can be given
that such program will be successful, or, if successful, that the Company will
be able to sublet its existing office space on commercially reasonable terms.
At year end 1998 the Company recorded a liability of approximately $1.2 million
representing the future minimum lease payments under the leases.

Additionally, the Company entered into a new five year lease for approximately
4,000 square feet of data center space at its former offices in Columbia,
Maryland.  This data center will serve as a back-up facility which, when fully
operational in mid 1999, will be capable of fully supporting operations in the
event of failure of the Company's primary production center in Annapolis
Junction, Maryland.

Item 3.  Legal Proceedings.





                                      -19-
<PAGE>   20
                                                                  


The Company filed a complaint on January 26, 1998 in the Circuit Court for
Howard County, Maryland, asserting claims against The Money Store Auto Finance,
Inc. and The Money Store Service Corporation (collectively, the "Money Store").
The Money Store unilaterally terminated a contract under which CMSI was
developing software to be licensed by the Money Store.  Repeated efforts by
CMSI to obtain settlement which would avoid litigation failed.  The original
software license price was $1.5 million.  The Money Store originally paid
$375,000 to the Company, which was recognized as revenues for the third quarter
of 1997. Effective June 30, 1998, The Money Store was acquired by First Union
Corporation.  In July, 1998, First Union Corporation entered into an agreement
to license CreditRevue and enrolled in the CreditConnection Service.  At the
time that First Union entered into these agreements, The Money Store paid the
Company $283,750 in full settlement of the complaint filed by the Company
against The Money Store.

Item 4.  Submission of Matters to a Vote of Security Holders.

         (a)     Not applicable.

         (b)     Not applicable.

         (c)     Not applicable.

         (d)     Not applicable.

Item 5.  Market for Registrants Common Equity and Related Shareholder Matters

                 Not applicable





                                      -20-
<PAGE>   21
                                                                  



                                    PART II

         MARKET INFORMATION

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CMSS."  The following table sets forth, for the calendar periods
indicated, the range of high and low bid quotations as reported by the Nasdaq
National Market.  These quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions.


<TABLE>
<CAPTION>
                                                                                STOCK PRICE
                                                                                -----------

                                                                             HIGH              LOW
                                                                             ----              ---
<S>                                                                          <C>              <C>
CALENDAR YEAR 1996:
         December 18, 1996-December 31, 1996                                 $14.50           $11.50

CALENDAR YEAR 1997:
         First Quarter                                                       $20.25           $10.25
         Second Quarter                                                      $13.50           $ 9.00
         Third Quarter                                                       $18.25           $10.25
         Fourth Quarter                                                      $19.38           $ 9.75

CALENDAR YEAR 1998:
         First Quarter                                                       $13.19           $ 7.50
         Second Quarter                                                      $ 8.50           $ 5.25
         Third Quarter                                                       $ 9.50           $ 5.63
         Fourth Quarter                                                      $ 7.38           $ 4.06

CALENDAR YEAR 1999:                                                          $ 5.50           $ 3.88
         First Quarter (through March 26, 1999)
</TABLE>

On March 26, 1999, the last reported sales price for the Company's Common Stock
on the Nasdaq National Market was $4.13  per share.

         HOLDERS

As of March 26, 1999, the approximate number of registered stockholders of
record of the Common Stock was 227.

         DIVIDENDS

The Company does not anticipate paying any cash dividends in the foreseeable
future.  The Company currently intends to retain any future earnings for use in
its business. In addition, the Company's bank line of credit prohibits the
payment of cash dividends without the bank's prior written consent.





                                      -21-
<PAGE>   22
                                                                  



Item 6.          Selected Consolidated Financial Data.

The consolidated statement of operations data set forth below for the fiscal
years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the consolidated
balance sheet data at December 31, 1994, 1995, 1996, 1997 and 1998 have been
derived from the audited consolidated financial statements of the Company.  The
consolidated balance sheets at December 31, 1997 and 1998, and the consolidated
statement of operations for each of the years in the three year period ended
December 31, 1998, together with the notes thereto and the related report of
Ernst & Young LLP, are included elsewhere in this Report. The selected
financial data set forth below are qualified in their entirety by, and should
be read in conjunction with, the consolidated financial statements, the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Report.

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                ----------------------------------------------------------------------------
                                                      1994           1995          1996            1997            1998
 STATEMENT OF OPERATIONS DATA:                     ----------     ---------      -----------   -----------     ------------
 <S>                                               <C>          <C>            <C>           <C>             <C>
 REVENUES
 License and software development fees . . . .     $2,934,450   $ 7,207,581     $10,101,377    $11,549,378    $ 10,186,421
 Maintenance fees  . . . . . . . . . . . . . .        700,861     1,170,447       2,045,258      3,311,013       4,294,572
 Computer hardware sales . . . . . . . . . . .        316,145     1,853,424       2,106,634      1,656,530         776,790
 Service bureau revenues                                   --            --              --        640,818       1,644,991
                                                   -----------    ----------     -----------   -----------     ------------
                                                    3,951,456    10,231,452      14,253,269     17,157,739      16,902,774
 COSTS OF REVENUES
 Cost of license and software development fees      1,482,036     3,559,798       5,095,814      7,329,091       6,988,649
 Cost of maintenance fees  . . . . . . . . . .        151,346       280,176         452,559        880,360       1,108,367
 Cost of computer hardware sales . . . . . . .        315,262     1,500,816       1,782,166      1,504,915         952,662
 Cost of service bureau  . . . . . . . . . . .             --            --              --      2,085,543       3,398,453
 Selling, general and administrative expenses       2,244,031     3,966,265       6,126,494      8,537,967      12,823,909
 Research and development costs  . . . . . . .        167,152       165,366         526,521      1,790,709       1,964,057
                                                   -----------    ----------     -----------   -----------     ------------
                                                    4,359,827     9,472,421      13,983,554     22,128,585      27,236,097
                                                   -----------    ----------     -----------   -----------     ------------
 Income (loss) from operations . . . . . . . .       (408,371)      759,031         269,715     (4,970,846)    (10,333,323)

 OTHER INCOME (EXPENSE)
 Interest income (expense) net . . . . . . . .        (41,310)     (105,849)        (78,009)     1,181,411         763,292
 Amortization of excess of assigned value of
   Identifiable assets over cost of an acquired
   Interest  . . . . . . . . . . . . . . . . .        304,750       304,750         304,749         50,792                -
                                                   -----------    ----------     -----------   -----------     ------------
                                                      263,440       198,901         226,740      1,232,203      (9,570,031)
                                                   -----------    ----------     -----------   -----------     ------------
   Income (loss) before income taxes                 (144,931)      957,932         496,455     (3,738,643)     (9,750,031)
 Income tax expense  . . . . . . . . . . . . .             --            --         201,487             --              --
                                                   -----------    ----------     -----------   -----------     ------------
 Net income (loss) . . . . . . . . . . . . . .     $ (144,931)  $   957,932     $   294,968    $(3,738,643)   $ (9,750,031)
                                                   ===========    ==========     ===========   ===========     ============

 Basic earnings (loss) per common share            $    (0.03)  $      0.20     $      0.06    $     (0.49)   $      (1.25)
 Diluted earnings (loss) per common share          $    (0.03)  $      0.20     $      0.05    $     (0.49)   $      (1.25)
</TABLE>


<TABLE>
<CAPTION>
                                                   -----------    ----------     -----------   -----------     ------------
                                                      1994           1995            1996          1997            1998
                                                   -----------    ----------     -----------   -----------     ------------
 <S>                                               <C>           <C>             <C>            <C>              <C>
 BALANCE SHEET DATA:
 Cash and cash equivalents . . . . . . . . . .      $   75,840    $  120,255     $23,501,633    $20,569,300      $3,090,565
 Investments available for sale. . . . . . . .               -             -               -              -       6,482,021
 Working capital (deficit) . . . . . . . . . .     (1,073,896)   (1,362,539)      21,056,337     19,502,516       5,146,706
 Total assets  . . . . . . . . . . . . . . . .       1,581,751     4,035,323      28,451,530     28,956,723      25,109,676
 Long term debt, less current portion  . . . .         416,136       408,806         220,341        101,390         761,092
 Stockholders' equity (deficit)  . . . . . . .     (1,482,410)     (576,978)      22,587,896     23,211,385      13,849,643
</TABLE>





                                      -22-
<PAGE>   23
                                                                  


Item 7.          Management's Discussion and Analysis of Financial Condition
                 and Results of Operations.

The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
results of operations and financial condition.  The discussion should be read
in conjunction with the audited consolidated financial statements of the
Company and notes thereto.  This report contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company.  Investors are cautioned that such statements are
only predictions and that actual events or results may differ materially.  In
evaluating such statements, investors should carefully consider the various
factors identified in this Report which could cause actual results to differ
materially from those indicated by such forward-looking statements, including
the matters set forth in "Business -- Risk Factors."

         GENERAL

Overview

The Company was incorporated in 1987 to commercialize an automated credit
processing system developed by James R. DeFrancesco, the Company's Chairman and
Chief Executive Officer, and Scott L. Freiman, the Company's Executive Vice
President, while they were employed by American Financial Corporation ("AFC"),
an automobile finance servicing company owned by Mr. DeFrancesco. AFC was
acquired in October 1987 by Perpetual Savings Bank, FSB. Mr. DeFrancesco and
Mr. Freiman retained ownership of AFC's credit processing software which formed
the basis for CreditRevue. CreditRevue was initially released in 1988. Since
its initial release, the Company has continually enhanced CreditRevue in
response to the needs of its customers. CreditConnection, the Company's online
credit information and processing service, became commercially available in
July 1996.  The Dun & Bradstreet OneScore product was commercially released in
October 1997, CreditRevue Service Bureau was introduced in January 1998, Dun &
Bradstreet Portfolio Monitoring was introduced in June 1998 and the
CreditOnline Service, the Company's Internet lending solution was announced in
February, 1999.  In March 1999, the Company introduced CreditRevue Maestro, an
automated analysis engine for evaluating and decisioning consumer and small
business credit applications.  Fees from licenses of CreditRevue and related
maintenance fees and resales of third-party computer hardware and software
associated with installations of CreditRevue accounted for substantially all of
the Company's revenue through December 31, 1998.  See "Business -- Risk Factors
-- Dependence on CreditRevue Product Line."

License fees for CreditRevue are recognized based on a percentage-of-completion
method, measured generally on a cost-incurred basis.  The Company typically
charges a nonrefundable fee of 25% of the preliminary estimate of the total
license fee to develop an analysis of the customer's credit operations and a
plan for the configuration and implementation of CreditRevue according to the
customer's requirements. Costs consist primarily of direct labor and temporary
contract labor. Contracts in progress are reviewed periodically, and revenues
and earnings are adjusted based on revisions in contract value and estimated
costs to completion. For a description of certain risks associated with the
lengthy implementation time associated with installations of CreditRevue, see
"Business -- Risk Factors -- Lengthy Sales and Implementation Cycle." The
Company recognizes revenue from software maintenance contracts pro rata over
the term of the related agreement, which is generally one year. Maintenance
fees received in advance of revenue recognition are included in deferred
revenue. In addition, as a convenience to its customers, the Company offers
third-party computer hardware through various reseller arrangements.





                                      -23-
<PAGE>   24
                                                                  


However, neither third-party hardware nor third-party software sales are a
focus of the Company's overall marketing strategy. For the year ended December
31, 1998, revenues from third-party hardware and software sales accounted for
4.6% and 4.1% of total revenues, respectively. Revenues from resales of
third-party computer hardware and software are recognized at the time of
shipment and installation, respectively.

Certain of the Company's products and services, including CreditConnection,
CreditRevue Service Bureau and Dun & Bradstreet's OneScore, are charged on a
per transaction basis. As a result, the Company anticipates that
transaction-based revenue will represent an increasing proportion of the
Company's revenue. The Company's sales and marketing efforts will no longer be
exclusively targeted at generating license-based revenue but will be
increasingly focused on generating transaction-based revenue from prospective
customers. The Company's anticipated future growth is based, in large part, on
the success of these products and services and the transition to a
transaction-based revenue stream. Accordingly, the failure by the Company to
generate demand for CreditConnection, CreditRevue Service Bureau, Dun &
Bradstreet's OneScore, Dun & Bradstreet Portfolio Monitoring, CreditOnline,
CreditRevue Maestro, the occurrence of any significant technological problems,
such as a system failure incurred prior to the implementation of a fully
functioning back-up computer system, any inadequacy of the Company's business
interruption insurance to cover costs associated with system failure or
business interruptions, or the failure of the Company to successfully manage
the transition to a transaction-based revenue stream would have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business -- Risk Factors -- Market Acceptance of
CreditConnection; Transition to Transaction-Based Revenue" and "-- System
Interruption and Security Risks; Potential Liability; Possible Lack of Adequate
Insurance; and System Inadequacy."

Since 1987, the Company has continually invested in the development and
introduction of new products, services and enhancements to its software.
Research and development expenditures are expensed as incurred. Certain
software development costs are capitalized subsequent to the establishment of
technological feasibility in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. Based on the Company's current research and
development process, technological feasibility is established upon completion
of a working model. The Company intends to continue to expend substantial
resources on developing new products and services and enhancements to its
software to incorporate technological developments and satisfy evolving
customer needs.





                                      -24-
<PAGE>   25
                                                                  


         RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of total
revenues for the periods indicated (subtotals not adjusted for rounding):

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                       ---------------------------------------
                                                                       1996            1997          1998
                                                                       ---------      ---------     ----------
 <S>                                                                       <C>           <C>            <C>
 Percentages of Total Revenues
 Revenues
      License and software development fees  . . . . . . . . . .            70.9%          67.3%          60.3%
      Maintenance fees . . . . . . . . . . . . . . . . . . . . .            14.3           19.3           25.4
      Computer hardware sales  . . . . . . . . . . . . . . . . .            14.8            9.7            4.6
      Service bureau fees. . . . . . . . . . . . . . . . . . . .             ---            3.7            9.7
                                                                       ---------      ---------     ----------
                                                                           100.0          100.0          100.0
                                                                       ---------      ---------     ----------
 Costs and Expenses
      Cost of license and software development fees  . . . . . .            35.8           42.7           41.3
      Cost of maintenance fees . . . . . . . . . . . . . . . . .             3.2            5.1            6.6
      Cost of computer hardware sales  . . . . . . . . . . . . .            12.5            8.8            5.6
      Cost of service bureau fees  . . . . . . . . . . . . . . .             ---           12.2           20.1
      Selling, general and administrative expenses . . . . . . .            43.0           49.8           75.9
      Research and development costs . . . . . . . . . . . . . .             3.7           10.4           11.6
                                                                       ---------      ---------     ----------
                                                                            98.2          129.0          161.1
                                                                       ---------      ---------     ----------
 Income (loss) from operations . . . . . . . . . . . . . . . . .             1.8         (29.0)         (61.1)
 Other income (expense)
      Interest income (expense),  net  . . . . . . . . . . . . .           (0.5)            6.9            4.5
      Amortization of excess of assigned value of
        identifiable assets over the cost of an
        acquired interest  . . . . . . . . . . . . . . . . . . .             2.1             .3            ---
                                                                       ---------      ---------     ----------
                                                                             1.6            7.2            4.5
                                                                       ---------      ---------     ----------
 Income (loss) before income taxes . . . . . . . . . . . . . . .             3.4         (21.8)         (56.6)
      Income tax expense . . . . . . . . . . . . . . . . . . . .             1.4
                                                                       ---------      ---------     ----------

      Net income (loss)  . . . . . . . . . . . . . . . . . . . .            2.0%         (21.8)%        (56.6)%
                                                                       =========      =========     ==========
</TABLE>



Total Revenues

Total revenues increased 20.4% from $14.3 million in 1996 to $17.2 million in
1997 and decreased 1.5% from $17.2 million in 1997 to $16.9 million in 1998.
The Company's revenues are derived from four sources: license and software
development fees, maintenance fees, computer hardware sales, and service bureau
fees.  The Company's 10 largest customers accounted for 48.8% and 55.4% of
total revenues in 1997 and 1998, respectively.  During 1998, the
Company experienced longer than expected sales cycles for its CreditRevue
product resulting in lower CreditRevue related revenues and correspondingly
lower total revenues.  Also, for the first time, the Company experienced
contract disputes including its dispute with The Money Store, which had an
adverse impact on CreditRevue revenues and contributed to the decline in total
revenues.

License and Software Development Fees

CreditRevue accounted for virtually all of the Company's license and software
development fee revenue through December 31, 1998.  License and software
development fees increased 14.3% from $10.1 million in 1996 to $11.5 million in
1997, and decreased 11.8% from $11.5 million in 1997 to $10.2 million in 1998.
The increase in 1997 was the result of increased market acceptance of
CreditRevue.  The decrease in 1998 was the result of longer than expected sales
cycles for the CreditRevue product and certain contract disputes.  By late
1998, sales performance improved as a result of signing 9 new contracts for
CreditRevue with an aggregate contract value of approximately $7 million.





                                      -25-
<PAGE>   26
                                                                  



Maintenance Fees

Maintenance fees include fees from software maintenance agreements.
Maintenance fees increased  61.9% from $2.0 million in 1996 to $3.3 million in
1997, and 29.7% from $3.3 million in 1997 to $4.3 million in 1998. The growth
in these revenues during the periods presented was the result of increased
maintenance fees associated with the increased number of licenses of
CreditRevue outstanding during such periods.  Enhancements to previously
installed CreditRevue systems are also subject to maintenance and contribute to
growth in maintenance revenues.

Computer Hardware Sales

Computer hardware sales revenue decreased 21.5% from $2.1 million in 1996 to
$1.7 million in 1997, and 53.1% from $1.7 million in 1997 to $0.8 million in
1998. Computer hardware sales revenue consists of revenues received from
resales of third-party hardware in connection with the license and installation
of the Company's software. The fluctuation in such revenues during these
periods is the result of customer purchase preferences for computer hardware
systems.  In certain instances, CreditRevue customers have volume discount
arrangements with hardware resellers making them eligible for discounts greater
than those offered by the Company.

Service Bureau Fees

Service bureau revenues originate from CreditConnection transaction and
interface fees, from Dun & Bradstreet OneScore and Portfolio Monitoring
transaction fees and CreditRevue Service Bureau fees.  CreditConnection related
revenues increased 99.0% from $0.6 million in 1997 to $1.3 million in 1998.
The CreditConnection Service was commercially released in 1996 and generated
$49 thousand from inception through December 31, 1996.  CreditConnection
revenues increased to $618 thousand in 1997 from $49 thousand in 1996 and
increased 206% to $1.3 million in 1998 from $0.6 million in 1997.  Revenue
increases are the result of increases in the number of dealers and lenders
enrolled in the CreditConnection Service.  At December 1998 there were
approximately 150 dealers enrolled in the service compared to approximately 40
dealers at December 1997.  As of December 1998 there were approximately 21
lenders connected to the CreditConnection network compared to approximately 14
at December 1997.  Dun & Bradstreet related revenues increased to $203 thousand
in 1998 up from $23 thousand in 1997.  The Dun & Bradstreet OneScore service
was commercially released in the fourth quarter of 1997 and the Portfolio
Monitoring Service was released in June of 1998.  The CreditRevue Service
Bureau was released in January 1998, through a strategic alliance with Anytime
Access, but did not go into full production until January 1999.  Accordingly,
only nominal revenues were recorded in 1998 from CreditRevue Service Bureau
related services.

Cost of License and Software Development Fees

Cost of license and software development fees consist primarily of salaries and
benefits for in-house programmers and the cost of temporary contract labor.
Cost of license and software development fees increased 43.8% from $5.1 million
in 1996 to $7.3 million in 1997, and decreased 4.6% from $7.3 million in 1997
to $7.0 million in 1998. As a percentage of license and software development
fees, cost of license and software development fees were 50.4%, 63.5% and 68.6%
in 1996, 1997 and 1998, respectively. The cost of license and software fees as
a percentage of license and software development fees over these periods is
related to the fluctuation in the Company's quarterly revenues and hourly labor
costs associated with temporary contractors during periods in which the Company
experienced increased demand for its products. With respect to temporary
contractors, the Company's costs on a





                                      -26-
<PAGE>   27
                                                                  


full-time equivalent basis for these contractors is generally twice the amount
incurred by the Company for its in-house technical personnel. In late 1996 and
into 1997, the Company increased internal staffing levels commensurate with the
expected growth in revenues. These increased staffing levels are expected to
reduce the dependency on temporary contractors upon the completion of their
training in the Company's proprietary products, services and technology,
resulting in a corresponding increase in the margins related to these revenues.
However, while license related revenues increased in 1997, the costs of
increased staffing and temporary contractors exceeded revenue growth.  In 1998
efforts at staff reduction were curtailed by certain contract disputes and
prolonged sales cycles.  The sales cycle for license software is often
difficult to predict accurately.  The skills and knowledge required to perform
the licensed software implementation requires the Company to maintain certain
levels of specialized staffing occasionally creating production capacity in
excess of sales demand which can result in higher costs and lower margins.

Costs of Maintenance Fees

Cost of maintenance fees consists primarily of personnel and related costs for
customer maintenance and support. Cost of maintenance fees increased 94.5% from
$0.5 million in 1996 to $0.9 million in 1997, and 25.9% from $0.9 million in
1997 to $1.1 million in 1998.  As a percentage of maintenance fee revenue, cost
of maintenance fees was 22.1%, 26.6% and 25.8% in 1996, 1997 and 1998,
respectively. The dollar increase in the cost of maintenance fees reflects the
growth in license fees for CreditRevue during the periods presented and the
resultant increase in the number of installations. The fluctuation in the
percentage of cost of maintenance fees to maintenance fee revenues in 1996,
1997 and 1998 results from incremental increases in staffing for maintenance
personnel as maintenance revenues have increased. Staffing utilization
efficiencies will vary based on the timing and training of additions to
maintenance staff personnel.  In certain instances, hardware revenues may not
be large enough to offset both the direct cost and the hardware being sold as
well as certain fixed costs associated with the salaries and benefits for
systems integration employees thereby resulting in negative margins.

Cost of Computer Hardware Sales

Cost of computer hardware sales consists of (i) the Company's cost of computer
hardware resold to the Company's customers that are licensing CreditRevue and
(ii) salaries and benefits for systems integration employees. Cost of computer
hardware sales decreased 15.6% from $1.8 million in 1996 to $1.5 million in
1997, and decreased 36.7% from $1.5 million in 1997 to $1.0 million in 1998. As
a percentage of computer hardware sales revenue, cost of computer hardware
sales was 84.6%, 90.8% and 122.6% in 1996, 1997 and 1998, respectively. The
dollar fluctuation in the cost of computer hardware sales reflects the
fluctuation in computer hardware sales during the periods presented. The
Company's margin on computer hardware sales fluctuates based on changes in
product sales mix, volume discounts to significant customers and negotiated
mark-ups with customers.

Cost of Service Bureau Revenues





                                      -27-
<PAGE>   28
                                                                  


Cost of service bureau fees consist primarily of personnel costs associated
with the operation and support of the service bureau.  Other costs of service
bureau revenues include equipment rental expenses, communications network costs
from third parties and hardware and software pass through expenses.  Services
bureau costs were not separately identified in 1996.  Service Bureau costs
increased 63.0% from $2.1 million in 1997 to $3.4 million in 1998.  Of the
three primary sources of service bureau revenues, CreditConnection, Dun &
Bradstreet related services and CreditRevue Service Bureau, only
CreditConnection was operational for all of 1997.  The increases in service
bureau costs are related to increased staffing required for operations and
support for both CreditConnection and the Dun & Bradstreet related services
increased communication expenses associated with the expanding CreditConnection
network.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 39.4% from $6.1 million
in 1996 to $8.5 million in 1997, and 50.2% from $8.5 million in 1997 to $12.8
million in 1998. The $2.4 million increase during 1997 relates primarily to
recruiting and professional development, outside consultant services,
depreciation, travel, telephone, office administrative expenses, sales,
marketing and advertising expenses. The $4.3 million increase during 1998
relates to one time expenses and reserves associated with the Company's
relocation to Annapolis Junction and increases in payroll costs, communications
expenses, depreciation and other general sales and administrative expenses.  Of
the total 1998 increase, approximately $2.8 million relate to facilities and
equipment expenses.  As a result of the relocation of the Company's operations,
a liability of approximately $1.2 million was recorded to recognize future
minimum lease payments due under leases for the Company's former offices. Other
one time charges associated with the move include the write-off of certain
leasehold improvements of approximately $0.3 million and certain lease
termination fees and moving expenses of approximately $0.2 million.
Additionally, increases in communication and depreciation expenses represent
approximately $1.0 million of the 1998 increase.  Payroll related expenses
increased approximately $0.8 million and the balance of the increase was in the
area of general selling and administrative expenses including: advertising,
travel, legal and accounting fees.  Increases in payroll relate primarily to
increases in sales and marketing staffing.

Research and Development Costs

Research and development costs consist primarily of salaries and benefits of
in-house programmers. These costs increased $0.2 million during the year ended
December 31, 1998 as compared to the year ended December 31, 1997, due primarily
to the addition of four programmers in 1998. The increased staffing was required
to address a number of strategic development efforts underway during 1998,
including on going efforts for CreditConnection, CreditRevue 2000, Dun &
Bradstreet Portfolio Monitoring, CreditRevue service bureau and CreditRevue
Maestro projects. During 1997, all development activities were expensed.
During 1998, approximately $0.3 million of costs associated with the development
of CreditRevue Maestro were capitalized.  The capitalized expenses include the
direct payroll costs of certain programmers and certain third party development
expenses.  See Note 1 to the Consolidated Financial Statements.

Amortization of Assigned Value Over Cost of an Acquired Interest

From September 1988 through March 1993, the Company was the sole general
partner of a limited partnership. In March 1993, the Company purchased the
other partner's limited partnership interest for $0.2 million. The acquisition
was accounted for as an acquisition of a minority interest using the purchase
method of accounting. The assigned value of the identifiable net assets
acquired over the cost of the acquired interest was $1.2 million. This amount
has been amortized into income using the straight-line method over four years.





                                      -28-
<PAGE>   29
                                                                  


Interest Income (Expense)

Interest expense was $0.1 million in 1996 and 1997. In 1998 interest income was
$0.8 million. The interest expense reported in 1996 and 1997 relates to
borrowings under the Company's line of credit and obligations under the capital
lease. The interest income reported in 1998 and 1997 results from invested
proceeds from the Company's initial public offering.

         INCOME TAX EXPENSE

From its inception in 1987 until its reincorporation in Delaware in November
1996, the Company had been treated for income tax purposes as a corporation
subject to federal and state taxation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Code") and comparable state laws. As a
result, for federal and state income tax purposes, the Company's earnings had
been taxed directly to the Company's stockholders. Upon termination of the
Company's Subchapter S status in November 1996, the Company determined the
differences between the financial reporting and income tax bases of its assets
and liabilities, and recorded at that date the resulting deferred tax liability
and income tax expense. Income tax amounts and balances are accounted for in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes.  The Company's income tax expense for the year ended December
31, 1996 approximates the income tax expense that would have been recognized
had the Company terminated its Subchapter S status at January 1, 1996.  During
the two months ended December 31, 1996, the Company incurred a loss for federal
income tax purposes of approximately $756,000, caused principally by a tax
deduction of $650,000 related to the exercise of certain nonqualified stock
options by officers of the Company. At December 31, 1998, the Company had net
operating loss carryforwards of approximately $14.4 million which will expire in
2011, 2012 and 2013.  See Note 2 to the Consolidated Financial Statements for
more information regarding the Company's income tax status.

         SEGMENT REPORTING  

From inception through 1996, the Company operated predominantly in a single
segment. With the introduction of new products and services commencing in 1997
the Company has adopted, effective in 1998, a matrix oriented 'line of business'
organizational structure. Under this structure, products and services have been
organized into three distinct business lines, Credit Decisioning Systems (CDS),
E-Commerce and Service Bureau Alliances (SBA). The CDS business line which
includes the CreditRevue software product and related services represents the
Company's historical single segment and through 1996 was responsible for
virtually all of the Company's revenues and profits or losses. The E-Commerce
business line includes the CreditConnection, LenderLink, and CreditOnline
services. The SBA business line includes the OneScore product, the Portfolio
Monitoring service and the CreditRevue Service Bureau offerings.

The Company evaluates performance and allocated resources based on operating
income before depreciation and amortization, corporate general and
administrative expenses, and income taxes. Assets are not apportioned by segment
and are not reviewed by the Chief Operating Decision Maker in reviewing segment
performance. The accounting policies used by the reportable segments are the
same as those used by the Company and described in Note 1 to the financial
statements. There are no intercompany sales or transfers. The segments are
managed separately by Business Line Managers who are most familiar with segment
operations.

The Company has since 1996, introduced new products and services which have led
to the formation of the three segments the Company currently operates. The CDS
segment is the most established and mature of the three segments and continues
to be the segment with the highest profitability. The E-Commerce segment,
introduced in 1997, continues to require considerable investment in sales,
marketing, development and infrastructure. As the E-Commerce products and
services gain greater market acceptance, revenues are expected to grow and
segment profitability is expected to improve. During 1998, E-Commerce revenues
increased 99% to $1.3 million from $0.6 million in 1997. Revenue growth during
1998 contributed directly to the lower losses reported in 1998. The SBA segment,
introduced in 1998, also requires continued investment in sales, marketing,
development and infrastructure before becoming profitable. Until revenues for
E-Commerce and SBA segments exceed costs of operations for each respective
segment, it is expected that CDS will continue to contribute the majority of
segment profits.

         LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its working capital needs and investments in property
and equipment from operating cash flows and approximately $22.1 million of net
proceeds from the Company's initial public offering completed in December 1996.
During the year ended December 31, 1996, the Company generated net cash from
operating activities of $1.9 million. During 1997 and 1998, the Company's
operations consumed cash of $4.1 million and $7.3 million, respectively.  This
cash flow deficiency is primarily caused by operating losses and an increase in
accounts receivable.

The Company's cash used for investing activities consists principally of
investments in property and equipment and capitalized software development
costs. During the years ended December 31, 1996, 1997 and 1998, the Company
invested a total of $0.5 million, $2.4 million and $4.3 million, respectively,
in property and equipment and capitalized software development costs. These
investments were directly attributable to the Company's growth in operations.
The Company did not have any material commitments for the purchase of property
and equipment at December 31, 1998.

The Company has relied principally on its bank line of credit and proceeds from
its initial public offering completed in December 1996 for its financing needs.
The Company received $22.1 million of net proceeds from its initial public
offering.  The Company maintains a secured bank line of credit in the amount of
$1.5 million, of which there was no balance outstanding at December 31, 1998.
The bank line of credit requires the bank's written consent prior to, among
other things, (i) the payment of cash dividends, (ii) the Company's engagement
in a substantially different business activity, or (iii) the purchase by the
Company of any interest in another enterprise or entity.  On May 15, 1997 the
Company repaid to Mr. James R. DeFrancesco, the Company's Chairman and Chief
Executive Officer,





                                      -29-
<PAGE>   30
                                                                  


$0.2 million of loans bearing interest at 7% per annum.

The Company currently anticipates that its available cash resources, expected
cash flows from operations and its bank line of credit will be sufficient to
meet its presently anticipated working capital, capital expenditure and debt
repayment requirements through 1999.

    YEAR 2000 COMPLIANCE

State of Readiness

The Company recognizes the significance of the year 2000 issue and has
implemented a formal year 2000 program to minimize the impact of the year 2000
on the Company and its customers ("Year 2000 Program").  The Year 2000 Program
addresses both information technology ("IT") and non-IT systems, for systems
used by the Company as well as those provided by the Company to its customers.
Non-IT systems are primarily used by the Company in the operation of its
facilities.  The Year 2000 Program is implemented by a Year 2000 Team which
includes members from all levels of management and all functional areas of the
Company, as follows:

         -   Executive Sponsor - The Executive Sponsor works with the Senior
             Technology Executive on budgeting and resources management and
             other major year 2000 issues, and reports on Year 2000 Program
             status to the Executive Management of the Company as well as the
             Board of Directors.

         -   Senior Technology Executive - The Senior Technology Executive
             manages the Project Managers-Company Wide.  Issues relating to
             budgeting and resources are escalated to the Senior Technology
             Executive.  The Senior Technology Executive also has the authority
             to prioritize Year 2000 tasks over other project tasks.

         -   Project Managers-Company Wide - The Project Managers-Company Wide
             share responsibility for determining the Year 2000 tasks that need
             to be completed, and monitoring the completion of the tasks on
             schedule.  The Project Managers-Company Wide are responsible for
             collecting, coordinating and disseminating information within the
             Company about the Year 2000 Program and its status.

         -   System Project Managers - A project manager is assigned to each of
             the primary areas of the Company.  Each System Project Manager is
             responsible for ensuring that the Year 2000 tasks relating to
             his/her area are completed on schedule.

         -   Product Project Managers - A project manager is assigned to each
             specific product.  Each Product Project Manager is responsible for
             ensuring that the Year 2000 tasks relating to that specific
             product are completed on schedule.

         -   System Analysts - System Analysts review individual products to
             identify Year 2000





                                      -30-
<PAGE>   31
                                                                  

             issues.

         -   Developers - Developers perform coding modifications to address
             year 2000 issues.

         -   Testers - Testing is performed under the guidance of the Quality
             Services department to ensure that any Year 2000 issues have been
             properly addressed.

Individual members of the Year 2000 Team communicate frequently with respect to
Year 2000 issues.  The Year 2000 Team meets as a group and reports status
bi-weekly.  Subgroups of the Year 2000 Team meet as needed to address specific
issues.

The Company is using employees of the Company to identify and address Year 2000
issues.  The Year 2000 Program involves six basic stages:  (1) inventory of all
potentially affected software products and software-related services, (2)
analysis of such products and services to identify any areas that require
change or replacement, (3) change or replacement of the identified areas, (4)
testing, (5) implementation of the changes or replacements, and (6) contingency
plans.  Because the Company is not only a user of software products and
software-related services, but also provides software products and
software-related services to its customers, the Company's Year 2000 Program
addresses both software products and software-related services used by the
Company and those provided by the Company to its customers.

The Company has established written Year 2000 coding standards which have been
distributed to the Company's system analysts, developers and testers.  The
Company has also conducted training for its system analysts, developers and
testers to ensure that they are familiar with the Company's Year 2000 coding
standards.

For purposes of the Year 2000 Program, the Company has classified into the
following three major categories the software products and software-related
services provided by the Company to its customers:  credit decisioning systems
(existing systems and new systems), e-commerce systems, and service bureau
systems.

CREDIT DECISIONING SYSTEMS (EXISTING).  For existing credit decisioning systems
(i.e., systems which customers were using in production at the time the Year
2000 Program was applied to the system), the Company performs the following
activities:

    1.   The customer's credit decisioning system is analyzed to identify any
         Year 2000 issues and to determine whether any modifications to the
         code are required.  The analysis is conducted in accordance with
         detailed procedures which were developed internally by the Company for
         Year 2000 analysis of its credit decisioning systems.

    2.   The Year 2000 modifications are made.

    3.   The modifications are tested.  The customer also has an opportunity to
         test the modifications.

    4.   Following the testing, the modifications are installed in the
         customer's system.

    5.   Any enhancements to the customers' credit decisioning system since the
         completion of the procedures described in items 1-4 above were
         developed and implemented by the Company under its Year 2000 Coding
         Standards.  As an extra safeguard, however, the Company conducts a
         follow-up Year 2000 analysis of these enhancements.

Credit Decisioning Systems (New).  For new credit decisioning systems (i.e.,
system which were not used by customers until after the Year 2000 Program was
applied to the system), the Company





                                      -31-
<PAGE>   32
                                                                  


performs the following activities:

    1.   Each new credit decisioning system starts with a "base" system.  The
         base system is analyzed for Year 2000 issues.

    2.   Enhancements are made to the base system based on the functional
         specifications agreed to between the Company and the customer, and the
         enhanced system is delivered to the customer for user acceptance
         testing.

    3.   Before or concurrent with the user acceptance testing, the Company
         reviews the code enhancements for compliance with the Company's Year
         2000 coding standards.

    4.   The Company implements required modifications on the test system at
         the Company's site, and tests the modifications.

    5.   Upon completion of testing of the changes by the Company, the software
         changes are reported to the customer and installed in the customer's
         system for further testing by the customer.

    6.   With respect to any enhancements to the credit decisioning system
         after acceptance by the customer of the system, the Company performs
         the enhancements in a test environment.  The enhancements are then
         analyzed and tested for Year 2000 issues following the above approach.

E-COMMERCE SYSTEMS.  For e-commerce systems, the Company performs the following
activities:

    1.   The Company analyzes the software programs supporting the e-commerce
         system to identify any Year 2000 issues and determines whether any
         modifications are required.  The Company also coordinates with the
         vendor of any hardware and other equipment supporting the e-commerce
         system to request Year 2000 information regarding the applicable
         product and to determine whether any patches, upgrades or replacements
         are necessary.  The Company also tests the third party product where
         necessary, appropriate and feasible.

    2.   Any necessary modifications are made to the software programs
         supporting the e-commerce system.  In addition, any necessary patches
         or upgrades to, or replacements of, third party products are
         installed.

    3.   The Company analyzes and tests the modifications, patches, upgrades
         and replacements.  The Company makes the Year 2000 version of the
         software programs supporting the e-commerce system available to its
         customers in a Year 2000 environment for testing of the modifications.
         The customer schedules the testing with the Company.

    4.   The modifications, patches, upgrades and replacements are placed into
         production.

    5.   With respect to any subsequent enhancements to the e-commerce system,
         the enhancements are performed in a test environment.  The
         enhancements are then analyzed and tested for Year 2000 issues
         following the above approach prior to being placed into production.

SERVICE BUREAU SYSTEMS.  For service bureau systems, the Company performs the
following activities:

    1.   The "base" service bureau system is analyzed for compliance with the
         Company's Year 2000 coding standards.

    2.   The Year 2000 modifications are made.

    3.   The modifications are tested.

    4.   For any subsequent releases, the Company analyzes the changes for
         compliance with the Company's Year 2000 coding standards.  The Company
         makes any required modifications





                                      -32-
<PAGE>   33
                                                                  

         to the code.

    5.   The Company tests the modifications.

    6.   Following the testing, the release is ready to be delivered to the
         customer.

As of December 31, 1998, approximately 80% of the analysis, remediation and
testing had been completed, collectively, for the Company's customers' credit
decisioning systems.  The implementation phase for the credit decisioning
customers is largely dependent on the customers' schedules, and for those
customers which have not implemented the necessary changes to their credit
decisioning systems, the Company is working with those customers to implement
the changes as soon as possible.  As of December 31, 1998, approximately 30% of
the analysis, remediation, testing and implementation had been completed for
the software and systems comprising the Company's e-commerce systems, which is
scheduled to be completed during the second quarter of 1999.  As of December
31, 1998, approximately 65% of the analysis, remediation, testing and
implementation had been completed for the Company's service bureau systems,
which is also scheduled to be completed during the second quarter of 1999.  The
Company has also implemented analysis and testing procedures to ensure that any
enhancements to a system following the completion of the analysis, remediation,
testing and implementation of that system do not contain any year 2000 issues.

In most cases, the software products and software-related services provided by
the Company interface to third party systems.  In cases where a third party has
provided Year 2000 interface specifications, the Company is developing, testing
and implementing new interface code to comply with those specifications.  All
new interface code is scheduled to be completed and implemented during the
second quarter of 1999.

INFRASTRUCTURE.  For products and systems used by the Company internally, the
Company performs one or more of the following activities:

    1.   The Company contacts the provider of the product or system in writing
         to request information regarding the Year 2000 readiness of its
         product or system, and evaluates the response for reasonableness and
         acceptability, based on CMSI's knowledge of the product or system.

    2.   The Company obtains Year 2000 compliance information from the third
         party's web site and evaluates the response for reasonableness and
         acceptability based on the Company's knowledge of the product or
         system.

    3.   The Company tests the product or system where appropriate and
         possible.

    4.   For any third party products or systems that require modifications,
         the Company works with the vendor to ensure that the modifications are
         completed in an acceptable time frame.

As the Company does not have any control over the third party providers of
products and systems, the Company cannot guarantee that such third party
products and systems will not suffer any adverse effects due to the Year 2000.

The Year 2000 activities described above relating to credit decisioning
systems, e-commerce systems, service bureau systems and third party products
and systems represent the standard procedures applied to the applicable system.
In certain circumstances, the Company may make changes to or deviate from these
procedures.

Costs

As of December 31, 1998, all expenses have been associated with the opportunity
cost of time spent by





                                      -33-
<PAGE>   34
                                                                  


employees of the Company on the Year 2000 Program, particularly on the
analysis, development, testing and implementation relating to software products
and software-related services provided to customers.  The Company estimates
that the opportunity cost incurred as of December 31, 1998 is approximately $1
million.  This cost can be allocated as follows:  $465,000 to credit
decisioning systems, $160,000 to e-commerce systems, $75,000 to service bureau
systems, and $300,000 to Year 2000 Program management, project oversight, and
client and vendor communications.  To complete the Year 2000 Program, in
addition to the opportunity costs of employees' time, the Company may also need
to purchase replacement products.  The Company's projected costs of the entire
Year 2000 Program is $2.3 million.

Risks

If a product or service provided by the Company is found to cause damage or
injury to a customer of the Company due to a failure of such product or service
to operate without any adverse effect due to date related processing associated
with the year 2000, the Company could be liable to such customer for a breach
of warranty, depending on the specific contractual arrangement between the
Company and such customer.  Although the Company's contractual arrangement with
each of its customers generally limits the Company's liability to such
customer, the Company cannot accurately predict whether or to what extent any
legal claims will be brought against the Company, or whether the Company will
otherwise be adversely affected by such claims.

In addition, a failure by the Company to make its products year 2000 compliant
could result in a decrease in sales of the Company's products, delays in the
development of other of the Company's products, an increase in the costs
associated with year 2000 remediation, and an increase in litigation costs.
The year 2000 issue may also have an indirect effect on the Company's business
and operations to the extent that potential customers of the Company may be
using significant resources to address year 2000 issues, and therefore may have
fewer resources to evaluate and purchase other products and services such as
the products and services offered by the Company.  If a material third party
product or system which the Company uses or interfaces to fails to operate
properly due to the year 2000, such failure could have a material adverse
effect on the Company's business and results of operations.

Contingency Plans

The Company will have a dedicated year 2000 support staff which will be
prepared to address year 2000 issues.  The Company is currently in the process
of investigating and developing additional contingency plans which will be
implemented if necessary.  The Company expects to complete development of the
contingency plans by the end of the third quarter of 1999.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk related to changes in interest rates. The
Company invests its excess cash balances in cash equivalents and municipal,
commercial and government agency obligations which are interest rate sensitive.
However, the maturities of these obligations is less than one year, mitigating
their sensitivity to interest rates. The Company believes that the effect, if
any, of reasonably possible near-term changes in interest rates on the
Company's financial position, results of operations and cash flows is not
material.

Item 8.  Financial Statements and Supplementary Data.

The information required by the item is incorporated herein by reference to the
consolidated financial statements listed in Item 14 below.


Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.





                                      -34-
<PAGE>   35
                                                                  


                                    PART III

Item 10.         Directors and Executive Officers of the Registrant.

The Company incorporates herein by reference the information concerning
directors and executive officers in its Notice of Annual Stockholders' Meeting
and Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year (the "1998 Proxy Statement").


Item 11.         Executive Compensation.

The Company incorporates herein by reference the information concerning
executive compensation contained in the 1998 Proxy Statement.


Item 12.         Security Ownership of Certain Beneficial Owners and
                 Management.

The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
1998 Proxy Statement.


Item 13.         Certain Relationships and Related Transactions.

The Company incorporates herein by reference the information concerning certain
relationships and related transactions contained in the 1998 Proxy Statement.





                                      -35-
<PAGE>   36
                                                                  


                                    PART IV

Item 14.         Exhibits, Financial Statement Schedules and Reports on Form
                 8-K

<TABLE>
<CAPTION>
                                                                                     Page Number
<S>                                                                                       <C>
         (a)     Index to Consolidated Financial Statements

                 Index                                                                    F-1

                 Report of Independent Auditors                                           F-2

                 Consolidated Balance Sheets as of December 31, 1998 and 1997             F-3

                 Consolidated Statements of Operations for the years ended
                 December 31, 1998, 1997 and 1996                                         F-4


                 Consolidated Statements of Stockholders' Equity (Deficit) for
                 the years ended December 31, 1998, 1997 and 1996                         F-5


                 Consolidated Statements of Cash Flows for the years ended
                 December 31, 1998, 1997 and 1996                                         F-6


                 Notes to Consolidated Financial Statements                               F-7

         (b)     Financial Statement Schedules
                 All schedules for which provision is made in the applicable
                 accounting regulations of the Securities and Exchange
                 Commission are not required under The related instruction or
                 are inapplicable and therefore have been omitted.

         (c)     Reports on Form 8-K

                 None

         (d)     Exhibits
                  3.1     Certificate of Incorporation of the Company*

                  3.2     Bylaws of the Company*

                  4.1     Specimen certificate for Common Stock of the Company*

                  4.2     See Exhibits 3.1 and 3.2 for provisions of the
                          Certificate of Incorporation and Bylaws of the
                          Company defining rights of holders of Common Stock of
                          the Company

                 10.1     Form of Project Commencement Agreement*

                 10.2     Form of Software License Agreement*

                 10.3     Form of Software Maintenance Agreement*

                 10.4     Form of Professional Services Agreement*
</TABLE>




                                      -36-
<PAGE>   37
                                                                  



                10.5      Form of CreditConnection Lender Agreement (for
                          CreditRevue Licensees)*

                10.6      Form of CreditConnection Lender Agreement (for
                          non-CreditRevue Licensees)*

                10.7      Form of CreditConnection Dealer Subscription
                          Agreement* 

                10.8.1    Office Building Lease between Symphony Woods Limited
                          Partnership and the Company dated October 29, 1993*

                10.8.2    Office Building Lease between Symphony Woods Limited
                          Partnership and the Company dated February 10, 1995*

                10.8.3    First Amendment to Lease dated March 29, 1995*

                10.8.4    Second Amendment to Lease dated August 12, 1996*

                10.9      Promissory Note dated December 31, 1995 given by the
                          Company to James R. DeFrancesco*

                10.10     Business Loan Agreement between The Columbia Bank and
                          the Company dated June 10, 1994*

                10.11     1996 Credit Management Solutions, Inc. Non-Qualified
                          Stock Option Plan*

                10.12     1996 Credit Management Solutions, Inc. Employee Stock
                          Purchase Plan*

                10.13     1996 Credit Management Solutions, Inc. Long-Term
                          Incentive Plan*

                10.14     Form of Tax Indemnification Agreement*

                10.15     1996 Credit Management Solutions, Inc. Non-Qualified
                          Stock Option Plan

                10.16     1997 Credit Management Solutions, Inc. Stock
                          Incentive Plan**

                23        Consent of Independent Auditors

                27.1      Financial Data Schedule***


-------------------------
*        Incorporated by reference to the Exhibits filed with the Company's
         Registration Statement on Form S-1, File No. 333-14007.

**       Incorporated by reference to the Company's 1997 Proxy Statement, file
         no. 000-21735

***      Incorporated by reference to the Company's 1998 Form 10-K, file 
         no. 000-21735



                                      -37-
<PAGE>   38
                                                                  



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                                          <C>
Credit Management Solutions, Inc.

By:      /s/ James R. DeFrancesco                                            April 14, 1999
         --------------------------------------------------------
         James R. DeFrancesco
         Chairman, Chief Executive Officer and
         Chairman of the Board of Directors (Principal
         Executive Officer)
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S>      <C>                                                <C>
By:       /s/ James R. DeFrancesco                          April 14, 1999
         -----------------------------
         James R. DeFrancesco
         President, Chief Executive Officer and
         Chairman of the Board of Directors (Principal
         Executive Officer)

By:       /s/ Peter M. Leger                                April 14, 1999
         ------------------------------------
         Peter M. Leger
         President,  Chief Operating Officer and
         Director

By:       /s/ Scott L. Freiman                              April 14, 1999
         ----------------------------------
         Scott L. Freiman
         Executive Vice President and Director

By:       /s/ Miles H. Grody                                April 14, 1999
         -----------------------------------
         Miles H. Grody
         Senior Vice President and Director

By:       /s/ Robert P. Vollono                             April 14, 1999
         -----------------------------------
         Robert P. Vollono
         Senior Vice President, Treasurer,
         Chief Financial Officer and
         Director (Principal Financial and Accounting
         Officer)

By:       /s/ Stephen X. Graham                             April 14, 1999
         -------------------------------
         Stephen X. Graham
         Director

By:       /s/ John J. McDonnell, Jr.                        April 14, 1999
         -------------------------------
         John J. McDonnell, Jr.
         Director
</TABLE>





                                      -38-
<PAGE>   39
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<S>                                                                                                <C>
Report of Independent Auditors  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . .  4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
Notes to Consolidated Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
</TABLE>
<PAGE>   40
                                                                  





                         Report Of Independent Auditors


The Board of Directors and Stockholders
Credit Management Solutions, Inc.

We have audited the accompanying consolidated balance sheets of Credit
Management Solutions, Inc. and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Credit Management
Solutions, Inc. and subsidiary at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.



                                                      /s/ Ernst & Young LLP

Baltimore, Maryland
February 22, 1999

                                       1
<PAGE>   41
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                            DECEMBER 31
                                                                                 --------------------------------------
                                                                                     1998                   1997
                                                                                 --------------------------------------
<S>                                                                                    <C>                 <C>
ASSETS
    Current assets:
       Cash and cash equivalents                                                        $3,090,565         $ 20,569,300
       Investments available-for-sale                                                    6,482,021                    -
       Accounts receivable, net of allowance of $352,664 and $194,856
          in 1998 and 1997, respectively                                                 5,487,202            3,550,927
       Costs and estimated earnings in excess of billings on uncompleted
          contracts                                                                        246,831              503,875
       Prepaid expenses and other current assets                                           280,515              463,849
       Deferred income taxes                                                                58,513               58,513
                                                                                 --------------------------------------
    Total current assets                                                                15,645,647           25,146,464

    Property and equipment:
       Computer equipment and software                                                   7,306,811            3,442,792
       Office furniture and equipment                                                    1,657,294              941,733
       Leasehold improvements                                                            2,661,291              499,404
                                                                                 --------------------------------------
                                                                                        11,625,396            4,883,929
    Accumulated depreciation and amortization                                          (2,549,451)          (1,677,138)
                                                                                 --------------------------------------
                                                                                         9,075,945            3,206,791

    Software development costs, net of accumulated amortization of
       $298,304 and $178,583 in 1998 and 1997, respectively                                338,724              179,582
    Other assets                                                                            49,360              423,886
                                                                                 --------------------------------------

    Total assets                                                                       $25,109,676          $28,956,723
                                                                                 ======================================

LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
       Accounts payable and accrued expenses                                            $5,798,379          $ 2,225,745
       Accrued payroll and related expenses                                                668,630            1,059,177
       Billings in excess of costs and estimated earnings on uncompleted contracts       1,044,015              588,522
       Deferred revenue                                                                  2,921,923            1,632,339
       Current portion of capital lease obligations                                         65,994              138,165
                                                                                 --------------------------------------
    Total current liabilities                                                           10,498,941            5,643,948

Long-term debt:
    Capital lease obligations, less current portion                                         28,966              101,390
    Other lease obligations, less current portion                                          732,126                    -
                                                                                 --------------------------------------
    Total liabilities                                                                   11,260,033            5,745,338
Commitments and contingencies                                                                    -                    -
Stockholders' equity:
    Preferred stock, $.01 par value; 1,000,000 shares authorized;
       No shares issued or outstanding                                                           -                    -
    Common stock, $.01 par value;  40,000,000 shares authorized;
       7,649,770 and 7,615,510 shares issued and outstanding at
       December 31, 1998 and 1997, respectively                                               76,497             76,155
    Additional paid-in capital                                                            26,853,194         26,645,247
    Accumulated deficit                                                                 (13,080,048)        (3,510,017)
                                                                                 --------------------------------------
    Total stockholders' equity                                                            13,849,643         23,211,385
                                                                                 --------------------------------------
                                                                                                             
    Total liabilities and stockholders' equity                                           $25,109,676        $28,956,723
                                                                                 ======================================
</TABLE>

The accompanying notes are an integral part of these financial statements.





                                       2
<PAGE>   42
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31
                                                              ------------------------------------------------------------------
                                                                     1998                    1997                     1996
                                                              ------------------------------------------------------------------
 <S>                                                          <C>                       <C>                       <C>
 REVENUES
     License and software development fees                       $ 10,186,421              $11,549,378               $10,101,377
     Maintenance fees                                               4,294,572                3,311,013                 2,045,258
     Computer hardware sales                                          776,790                1,656,530                 2,106,634
     Service bureau revenues                                        1,644,991                  640,818                         -
                                                              ------------------------------------------------------------------
                                                                   16,902,774               17,157,739                14,253,269

 COSTS OF REVENUES
     Cost of license and software development fees                  6,988,649                7,329,091                 5,095,814

     Cost of maintenance fees                                       1,108,367                  880,360                   452,559
     Cost of computer hardware sales                                  952,662                1,504,915                 1,782,166
     Cost of service bureau                                         3,398,453                2,085,543                         -
                                                              ------------------------------------------------------------------
                                                                   12,448,131               11,799,909                 7,330,539
                                                              ------------------------------------------------------------------
 GROSS PROFIT                                                       4,454,643                5,357,830                 6,922,730

 OTHER OPERATING EXPENSES:
     Selling, general and administrative expenses                  12,823,909                8,537,967                 6,126,494
     Research and development costs                                 1,964,057                1,790,709                   526,521
                                                              ------------------------------------------------------------------
                                                                   14,787,966               10,328,676                 6,653,015
                                                              ------------------------------------------------------------------
 INCOME (LOSS) FROM OPERATIONS                                   (10,333,323)              (4,970,846)                   269,715

 OTHER INCOME (EXPENSE):
      Interest expense                                               (24,965)                 (56,171)                 (109,207)
      Interest income                                                 788,257                1,237,582                    31,198
      Amortization of excess of assigned value of
        identifiable assets over cost of an acquired
        interest                                                            -                   50,792                   304,749
                                                              ------------------------------------------------------------------
                                                                      763,292                1,232,203                   226,740
                                                              ------------------------------------------------------------------
 INCOME (LOSS) BEFORE INCOME TAXES                                (9,570,031)              (3,738,643)                   496,455

 Income tax expense                                                         -                        -                   201,487
                                                              ------------------------------------------------------------------

 NET INCOME (LOSS)                                              $ (9,570,031)             $(3,738,643)               $   294,968
                                                              ==================================================================

 Basic earnings  (loss) per common share                        $      (1.25)             $     (0.49)               $      0.06
                                                              ==================================================================

 Diluted earnings (loss) per common share                       $      (1.25)             $     (0.49)               $      0.05
                                                              ==================================================================
</TABLE>


The accompanying notes are an integral part of these financial statements.





                                       3
<PAGE>   43
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                                        COMMON STOCK
                                                                 -----------------------       ADDITIONAL
                                                                     NUMBER                      PAID-IN
                                                                    OF SHARES      AMOUNT        CAPITAL
                                                                 ------------------------------------------
<S>                                                              <C>             <C>         <C>
Balance at January 1, 1996                                       4,910,100       $49,101     $         -
    Exercise of options to purchase common stock at $5 per
      share                                                        100,000         1,000         499,000
    Issuance of common stock, net of offering costs of
      $3,190,094                                                 2,200,000        22,000      22,087,906
    Income tax benefit from exercise of options to purchase
      common stock                                                       -             -         260,000
    Reclassification of Subchapter S accumulated deficit to
      additional paid-in capital upon termination of
      Subchapter S status                                                -             -        (559,737)
    Net income for 1996                                                  -             -               -
                                                                 ------------------------------------------

Balance at December 31, 1996                                     7,210,100        72,101      22,287,169
        Issuance of common stock, net of offering costs of
            $263,537                                               390,000         3,900       4,217,563

        Issuance of common stock under employee stock
            purchase program                                        14,546           145         136,204

        Exercise of options to purchase common stock at $5 per
            share                                                      864             9           4,311

        Net loss for 1997                                                -             -               -
                                                                 ------------------------------------------


Balance at December 31, 1997                                     7,615,510        76,155      26,645,247

       Issuance of common stock under employee stock purchase       19,572           196         134,653
            program
       Exercise of options to purchase common stock at $5 per       14,688           146          73,294
            share
       Net loss for 1998                                                 -             -               -
                                                                 ------------------------------------------

Balance at December 31, 1998                                     7,649,770       $76,497     $26,853,194
                                                                 ==========================================


<CAPTION>

                                                                     RETAINED
                                                                      EARNINGS
                                                                     (DEFICIT)       TOTAL
                                                                ------------------------------
<S>                                                              <C>             <C>
Balance at January 1, 1996                                       $   (626,079)     $  (576,978)
    Exercise of options to purchase common stock at $5 per
      share                                                                 -          500,000
    Issuance of common stock, net of offering costs of
      $3,190,094                                                            -       22,109,906
    Income tax benefit from exercise of options to purchase
      common stock                                                          -          260,000
    Reclassification of Subchapter S accumulated deficit to
      additional paid-in capital upon termination of
      Subchapter S status                                             559,737                -
    Net income for 1996                                                94,968          294,968
                                                                ------------------------------

Balance at December 31, 1996                                          228,626       22,587,896
        Issuance of common stock, net of offering costs of
            $263,537                                                        -        4,221,463

        Issuance of common stock under employee stock
            purchase program                                                -          136,349

        Exercise of options to purchase common stock at $5 per
            share                                                           -            4,320

        Net loss for 1997                                          (3,738,643)      (3,738,643)
                                                                ------------------------------


Balance at December 31, 1997                                       (3,510,017)      23,211,385

       Issuance of common stock under employee stock purchase               -          134,849
            program
       Exercise of options to purchase common stock at $5 per               -           73,440
            share
       Net loss for 1998                                           (9,570,031)      (9,570,031)
                                                                ------------------------------

Balance at December 31, 1998                                     $(13,080,048)     $13,849,643
                                                                ==============================
</TABLE>





The accompanying notes are an integral part of these financial statements.





                                       4
<PAGE>   44
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                        ------------------------------------------------
                                                               1998             1997            1996
                                                        ------------------------------------------------
<S>                                                      <C>                <C>           <C>
Operating activities:
  Net income (loss)                                      $ (9,570,031)      $(3,738,643)    $   294,968
  Adjustments:
    Depreciation                                            1,199,194           649,399         393,929
    Deferred income taxes                                           -                 -         201,487
    Amortization of excess of assigned value of
       identifiable assets over cost of  an acquired
       interest                                                     -           (50,792)       (304,749)
    Amortization of software development costs                119,721           119,722          59,861
    Loss (gain) on disposal of property and equipment         302,878            (6,431)              -
  Changes in operating assets and liabilities:
       Accounts receivable, net                            (1,936,275)       (1,602,507)       (131,454)
       Prepaid expenses and other current assets              183,334           193,168        (406,041)
       Accounts payable and accrued expenses                  102,200          (504,270)      1,357,399
       Accrued payroll and related expenses                  (390,547)          169,914         274,387
       Net billings in excess of costs and estimated
             earnings on uncompleted contracts                712,537           443,538        (687,983)
       Deferred revenue                                     1,289,584           252,644         790,800
       Accrued interest on stockholder loans                        -             6,025          15,015
       Other lease obligations                                732,126                 -               -
                                                        ------------------------------------------------

Net cash provided by (used in) operating activities        (7,255,279)       (4,068,233)      1,857,619

Investing activities:
       Capitalized software development costs                (278,863)                -         (91,036)
       Proceeds from sale of property and equipment           162,672             7,995               -
       Purchases of property and equipment                 (4,063,464)       (2,416,838)       (448,721)
       Decrease (increase) in other assets                    374,526          (334,848)        (55,185)
       Purchase of investments available-for-sale          (6,482,021)                -               -
                                                        ------------------------------------------------
Net cash used in investing activities                     (10,287,150)       (2,743,691)       (594,942)

Financing activities:
       Repayments of short term borrowings                          -                 -        (250,000)
       Repayments of stockholder loans                              -          (235,538)              -
       Payments under capital lease obligations              (144,595)         (235,311)       (224,725)
       Proceeds from exercise of stock options                 73,440             4,320         500,000
       Proceeds from issuance of common stock                 134,849         4,357,812      22,109,906

                                                        ------------------------------------------------
Net cash provided by  financing activities                     63,694         3,879,591      22,118,701
                                                        ------------------------------------------------

Net change in cash and cash equivalents                   (17,478,735)       (2,932,333)     23,381,378

Cash and cash equivalents at beginning of period           20,569,300        23,501,633         120,255
                                                        ------------------------------------------------

Cash and cash equivalents at end of period               $  3,090,565       $20,569,300     $23,501,633
                                                        ================================================
</TABLE>

The accompanying notes are an integral part of these financial statements.





                                       5
<PAGE>   45
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Property and Equipment

Property and equipment is stated at cost and depreciated using the
straight-line method based on estimated useful lives of between three and seven
years.

Included in computer equipment and software are direct costs of computer
software developed for internal use.  Costs incurred are capitalized and
amortized over periods not exceeding three years.

Amortization of leasehold improvements is provided using the straight-line
method over the lesser of the life of the improvement or the remaining term of
the lease.  Assets held under capital leases are stated at the lesser of the
present value of future minimum payments using the Company's incremental
borrowing rate at the inception of the lease or the fair value of the property
at the inception of the lease.  The assets recorded under capital leases are
amortized over the lesser of the lease term or the estimated useful life of the
assets in a manner consistent with the Company's depreciation policy for owned
assets.

Software Development Costs

Costs related to conceptual formulation and design of Company products are
expensed as incurred.  Costs incurred subsequent to establishment of
technological feasibility, but prior to the product being available for general
release to customers, are capitalized and amortized over estimated productive
lives, generally three years.  The Company evaluates its investment in product
development as events or changes in circumstances may arise, for the purpose of
determining whether the carrying amount of such assets may exceed the net
realizable value of the products.  In the event that capitalized costs of a
product exceed the estimated net realizable value of the product, such excess
amount is expensed.

Revenue Recognition

In October 1997, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position (SOP) 97-2, Software Revenue Recognition.  SOP 97-2
provides revised and expanded guidance on when revenue should be recognized and
in what amounts for licensing, selling, leasing, or otherwise marketing
computer software.  The adoption of SOP 97-2 in 1998 had no material impact on
the Company's results of operations in 1998.

Revenues from long-term software license contracts are recognized on the
percentage-of-completion method, measured generally on a cost incurred basis.
Costs consist primarily of direct labor and applicable overhead.  Contracts in
progress are reviewed periodically as the work progresses, and revenues and
earnings are adjusted in current accounting periods based on revisions in
contract value and estimates to complete.

The Company recognizes revenue from software maintenance contracts pro rata
over the term of the agreements, generally one-year.  Revenues from sales of
hardware and software are recognized at time of shipment and when collection of
the receivable is probable.  Payments received in advance of revenue
recognition for these services and product sales are included in deferred
revenue.

Advertising Costs

All advertising costs are expensed when incurred.  Costs which are included in
selling, general and administrative expense for the year ended December 31,
1998, 1997 and 1996 are $384,863, $265,404 and $156,686, respectively.
<PAGE>   46
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Income Taxes

Prior to November 1996, the stockholders elected under Subchapter S of the
Internal Revenue Code to include the Company's income in their personal income
tax returns for Federal and state income tax purposes.  Accordingly, the
Company was not subject to Federal and state income taxes prior to November
1996.  Upon termination of the Company's Subchapter S status in November 1996,
the Company determined the differences between the financial reporting and
income tax bases of its assets and liabilities, and recorded at that date the
resulting deferred tax liability and income tax expense.  Income tax amounts
and balances are accounted for using the liability method.

2. INCOME TAXES

The significant items comprising the Company's net deferred tax assets are as
follows:

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31
                                                                     ----------------------------------
                                                                         1998                1997
                                                                     ----------------------------------
                 <S>                                                  <C>                   <C>
                 Net operating loss carry forwards                      $ 5,764,162         $ 1,831,400
                 Accrued expenses                                           128,892             102,038
                 Provision for bad debts                                    141,058              77,942
                 Revenue recognition                                        318,874             33,,859
                                                                     ----------------------------------
                                                                          6,352,986           2,045,239

                 Software development costs                                 135,490              71,833
                 Depreciation                                               732,880             292,568
                                                                     ----------------------------------
                 Total deferred tax liabilities                             867,980             364,401
                 Net future income tax benefit                            5,484,616           1,680,838
                                                                     ----------------------------------
                 Valuation allowance for deferred tax assets            (5,426,103)         (1,622,325)
                                                                     ----------------------------------
                 Net deferred tax asset                                 $    58,513         $    58,513
                                                                     ==================================
</TABLE>

Income tax expense consists of the following for the year ended December 31,
1996:

<TABLE>
                          <S>                               <C>
                          Current:
                             Federal                        $       -
                             State                                  -
                                                             --------
                                Total Current                       -
                          Deferred:
                             Federal                          171,263
                             State                             30,224
                                                             --------
                                 Total Deferred               201,487
                                                              -------
                                                            $ 201,487
                                                            =========
</TABLE>
<PAGE>   47

                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company's income tax expense for the year ended December 31, 1996
approximates the income tax expense that would have been recognized had the
Company terminated its Subchapter S status on January 1, 1996.  A
reconciliation of income tax expense computed at the U.S. Federal statutory
rate to the recorded amount of income tax expense is as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31
                                                      ---------------------------------------------------
                                                         1998               1997               1996
                                                      ---------------------------------------------------
 <S>                                                  <C>               <C>                   <C>
 Tax expense at U.S. statutory rate                   $  (3,253,811)    $   (1,271,138)       $   168,795
 Effect of permanent differences                             24,235              5,876             (7,137)

 Change in allocation of net loss in 1996
      between  C Corporation and Subchapter
      S Corporation                                               -           (132,744)                -
 Expense recorded upon termination of
      Subchapter S status                                                            -             39,829
 State income taxes
                                                           (574,202)          (224,319)                 -
 Effect of change in valuation allowance for
     deferred tax assets                                  3,803,778          1,622,325                  -
                                                      ---------------------------------------------------
 Total                                                $           -      $           -        $   201,487
                                                      ===================================================
</TABLE>


At December 31, 1998 the Company had net operating loss carryforwards of
$14,410,404 which will begin to expire in 2011.


3. EARNINGS (LOSS) PER SHARE

The following table summarizes the computations of basic and diluted earnings
(loss) per common share:
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31
                                                        ------------------------------------------------------------
                                                            1998                 1997                   1996
                                                        ------------------------------------------------------------
<S>                                                     <C>                    <C>                  <C>
Numerator for basic and diluted earnings (loss)
     per common share:
Net income (loss)                                          $(9,570,031)         $(3,738,643)             $  294,968
                                                        ============================================================
Denominator:
Denominator for basic earnings (loss) per common
   share - Weighted-average shares                           7,636,217            7,597,368               4,998,319
Effect of dilutive employee  stock options                           -                    -                 605,131
                                                        ------------------------------------------------------------
Denominator for diluted earnings (loss) per common
   share                                                     7,636,217            7,597,368               5,603,450
                                                        ------------------------------------------------------------
Basic earnings (loss) per common share                     $     (1.25)         $     (0.49)             $     0.06
                                                        ============================================================
Diluted earnings (loss) per common share                   $     (1.25)         $     (0.49)             $     0.05
                                                        ============================================================
</TABLE>
<PAGE>   48
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Dilutive loss per share is equal to basic loss per share in 1998 and 1997
because if potentially dilutive securities were included in the computation,
the result would be anti-dilutive.  These potentially dilutive securities
consist of stock options as described in Note 9.

In 1997 the Company adopted the provisions of Staff Accounting Bulletin No. 98
("SAB 98"), issued by the SEC staff in February 1998.  SAB 98 requires that
registrants in initial public offerings consider all potentially dilutive
securities issued for nominal consideration outstanding for all periods.  Under
the previous SEC regulations in SAB 83, the Company considered all potentially
dilutive securities issued within a twelve month period prior to the initial
public offering date at a price below the initial public offering prices as
outstanding for all periods.  The 1996 basic and diluted earnings per common
share amounts have been restated to conform to the provisions of SAB 98.  The
effect of the adoption was to increase basic earnings per common share in 1996
by $.01.  The adoption of SAB 98 in 1997 had no effect on basic and diluted
loss per common share in 1998 and 1997.

4. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Capital lease obligations of $26,565, and $77,779 were incurred when the
Company entered into leases for new equipment during the years ended December
31 1997, and 1996, respectively.  In 1998, the Company acquired equipment with
a fair market value of $3,470,434 that was included in accounts payable at
December 31, 1998.

Interest paid during the year ended December 31, 1998, 1997 and 1996 was
$24,965, $56,171 and $109,207, respectively.  The Company paid no amounts
related to income taxes during the three years ended December 31, 1998.

5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Uncompleted contracts consist of the following components:
<TABLE>
<CAPTION>
                                       BALANCE SHEET CAPTION
                                 ----------------------------------------
                                      COSTS AND
                                 ESTIMATED EARNINGS BILLINGS IN EXCESS OF
                                    IN EXCESS OF     COSTS AND ESTIMATED
                                      BILLINGS             EARNINGS               TOTAL
                                 ----------------------------------------------------------
<S>                                 <C>                <C>                  <C>
December 31, 1997:
  Costs and estimated earnings         $3,899,095         $   272,953          $4,172,048
  Billings                              3,395,220             861,475           4,256,695
                                 ----------------------------------------------------------
                                       $  503,875         $  (588,522)         $  (84,647)
                                 ==========================================================
December 31, 1998:
  Costs and estimated earnings         $1,573,861         $ 3,236,349          $4,810,210
  Billings                              1,327,030           4,280,364           5,607,394
                                 ----------------------------------------------------------
                                       $  246,831         $(1,044,015)         $ (797,184)
                                 ==========================================================
</TABLE>


All receivables on contracts in-progress are expected to be collected within
twelve months.
<PAGE>   49
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


6. BANK LINE OF CREDIT

The Company has a revolving line of credit with a bank which allows for
aggregate borrowings of $1.5 million through the expiration date of June 1,
1999.  Borrowings under the line of credit are secured by the Company's
accounts receivable and property and equipment, and bear interest at the bank's
prime rate (8.50% at December 31, 1998).  Under the terms of the loan
agreement, the Company is required to comply with certain covenants including a
restriction on assuming additional indebtedness without the prior written
consent of the bank.  The Company had no borrowings outstanding under this line
of credit as of December 31, 1998 and 1997.

7. CAPITAL LEASE OBLIGATIONS

The Company leases equipment under capital leases.  Property and equipment
includes the following amounts for leases that have been capitalized:


<TABLE>
<CAPTION>
                                                                           DECEMBER 31
                                                                   --------------------------
                                                                        1998          1997
                                                                   --------------------------
<S>                                                                 <C>              <C>
Computer equipment                                                  $220,119         $419,746
Office furniture and equipment                                       183,350          265,338
                                                                   --------------------------
                                                                     403,469          685,084
Less:  accumulated amortization                                      235,635          291,511
                                                                   --------------------------
                                                                    $167,834         $393,573
                                                                   ==========================
</TABLE>

Amortization of leased assets is included in depreciation expense.

Future minimum payments under capital lease obligations consist of the
following at December 31, 1998:

<TABLE>
<S>                                                                                <C>
1999                                                                               $   79,973
2000                                                                                   24,412
                                                                                   ----------
Total minimum lease payments                                                          104,385
Less: amounts representing interest                                                     9,425
                                                                                   ----------
Present value of minimum capital lease payments (including current portion
  of $65,994)                                                                      $   94,960
                                                                                   ==========
</TABLE>
<PAGE>   50
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


8. Other Lease Obligations

During 1998, the Company relocated its corporate headquarters, and remains
obligated under operating leases for unutilized space at the former
headquarters.  Accordingly, in 1998 the Company estimated the present value of
its future minimum obligations and recorded $1,062,425 of expense. At December
31, 1998, approximately $330,299 is classified in accounts payable and accrued
expenses and $732,126 is classified as other lease obligations.  Repayment of
these obligations is over the remaining contractual life of the leases and are
as follows:

<TABLE>
<S>                                                                            <C>
1999                                                                           $      386,536
2000                                                                                  394,068
2001                                                                                  396,718
                                                                               --------------
Total minimum lease payments                                                        1,177,322
Less: amounts representing interest                                                   114,897
                                                                               --------------
Present value of minimum lease payments (including current portion of
  $330,299)                                                                     $   1,062,425
                                                                               ==============
</TABLE>


9.  STOCK OPTIONS

The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by APB Opinion 25, Accounting for
Stock Issued to Employees. ("APB No. 25").  Under APB No. 25, if the exercise
price of the Company's employee stock options equals the estimated fair value
of the underlying stock on the date of grant, no compensation expense is
generally recognized.   Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation ("Statement No. 123"), encourages
companies to recognize expense for stock-based awards based on their estimated
value on the date of grant.  Statement No. 123 requires the disclosure of pro
forma income and earnings has per share data in the notes to the financial
statements if the fair value method is not elected.  The Company accounts for
its stock-based compensation plans using the intrinsic value method, and
supplementally discloses in  these financial statements the pro forma
information as if the fair value method has been adopted.

In 1996, the Company adopted the 1996 Credit Management Solutions, Inc.
Non-Qualified Stock Option Plan ("the 1996 Plan").  The 1996 Plan provides for
the granting of non-qualified options to purchase an aggregate of up to
2,750,000 shares of common stock to employees of the Company.

In 1997, the Company adopted the 1997 Stock Incentive Plan (the "1997 Plan").
The 1997 Plan provides for the granting of either non-qualified or qualified
options to purchase an aggregate of up to 3,400,000 shares of common stock,
subject to adjustment, to employees of the Company and others.  All options
granted under the 1996 Plan were transferred to the 1997 Plan and the 1996 Plan
was terminated.  The 1997 Plan includes a discretionary option grant program, a
salary investment option grant program, a stock issuance program, an automatic
option grant program and a director fee option grant program.
<PAGE>   51
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  STOCK OPTIONS (CONTINUED)

A summary of the Company's stock options activity and related information is as
follows:


<TABLE>
<CAPTION>
                                              1998                        1997                         1996
                                       ----------------------     ----------------------      -------------------------
                                                   WEIGHTED-                   WEIGHTED-                    WEIGHTED-A
                                                    AVERAGE                     AVERAGE                       VERAGE
                                                    EXERCISE                    EXERCISE                     EXERCISE
                                        OPTIONS      PRICE          OPTIONS      PRICE          OPTIONS       PRICE
                                       ----------------------     ----------------------      -------------------------
 <S>                                   <C>              <C>        <C>           <C>            <C>           <C>
 Options outstanding -
    beginning of year                  2,691,844        $5.79      2,462,800       $5.37                -     $      -
 Granted                               1,201,880         7.33       266,,560        9.93        2,562,800         5.36

 Exercised                              (14,688)         7.70          (864)        5.00        (100,000)         5.00
 Forfeited                             (209,388)         5.00       (36,652)        7.90                -            -
                                       --------------------------------------------------------------------------------
 Options outstanding -
    end of year                        3,669,648        $6.33      2,691,844       $5.79        2,462,800        $5.37
                                       ======================     ======================      =========================


 Exercisable at end of year            1,583,228        $5.32      1,071,572       $5.26          560,760        $5.15
                                       ======================     ======================      =========================

 Weighted-average fair value
      of  options granted during
      the year at market value                          $4.33                    $6.03                           $0.82
                                                     ========               ============                    ===========

 Weighted average fair value
      of  options granted during
      the year at greater than
      market value                                      $2.41                     N/A                              N/A
                                                     ========               ============                    ===========
</TABLE>



Exercise prices for options outstanding as of December 31, 1998 ranged from
$4.06 to $13.13 as follows:


<TABLE>
<CAPTION>
                                                           WEIGHTED-AVERAGE
       EXERCISE           OPTIONS          OPTIONS        REMAINING LIFE IN      WEIGHTED-AVERAGE
        PRICE           OUTSTANDING      EXERCISABLE            YEARS             EXERCISE PRICE
    ------------------------------------------------------------------------------------------------
    <S>                     <C>              <C>                        <C>                   <C>
      $4.06 to $5.38        2,324,068        1,445,778                   7.64                  5.00
      $6.00 to $8.00          750,100                0                    8.15                  6.95
      $8.25 to $9.60          255,380           95,030                   8.24                  9.34
     $9.75 to $10.50          300,100           22,420                   5.66                  9.95
    $12.38 to $13.13           40,000           20,000                   8.75                 12.66

     $4.06 to $13.13        3,669,648        1,583,228                   7.63                  6.19
</TABLE>

All options granted under the Plan are subject to vesting provisions at the
discretion of the Board of Directors.  Options granted to date vest in varying
percentages through 2003.

Pro forma net loss and loss per share information required by Statement No. 123
has been determined as if the Company had accounted for its employee stock
options under the fair value method.  The fair value of options granted in 1998
and 1997 was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:  risk-free
interest rate of 5.5% in 1998 and 1997; dividend yield of 0% in 1998 and 1997;
volatility factor of the expected market price of the Company's common stock of
 .81 and .67 in 1998 and 1997, respectively; and a weighted-average expected
life of the options of five years in 1998 and 1997.
<PAGE>   52
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  STOCK OPTIONS (CONTINUED)

For the year ended December 31, 1996, pro forma net loss and loss per share
information required by Statement No. 123 was determined using the minimum
value method, due to the lack of sufficient information to calculate the fair
value of granted options using Black-Scholes.  The minimum value method
calculates the fair value of options as the excess of the estimated fair value
of the underlying stock at the date of grant over the present value of both the
exercise price and the expected dividend payments, each discounted at the
risk-free rate, over the expected life of the option.  In determining the
estimated fair value of granted stock options under the minimum value method,
the risk-free interest rate was assumed to be 6%, the dividend yield was
estimated to be 0%, an the expected life granted options was assumed to be five
years.

Because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the minimum value method and
other methods prescribed by Statement No. 123 do not necessarily provide a
single measure of the fair value of its employee stock options.

For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods.  The
Company's pro forma information follows:

<TABLE>
<CAPTION>
                                    1998              1997             1996
                                -------------------------------------------------
 <S>                            <C>                 <C>              <C>
 Pro forma net loss             $(11,068,442)       $(4,785,660)     $(1,386,032)

 Pro forma earnings per
 share:  Basic and diluted            $(1.45)            $(0.63)          $(0.28)
</TABLE>


10. PROFIT SHARING PLAN

The Company maintains a 401(k) profit sharing plan which covers all employees
with at least six months of service.  In addition, the Company may make a
discretionary contribution based on each eligible participant's compensation.
Participant contributions vest immediately and employer contributions vest over
a six year period.  In January 1996, the Company began matching 20% per annum
of the first $1,000 contributed to the plan by each employee.  Contributions
for the years ended December 31, 1998 and 1997 were $33,189 and $23,315,
respectively.

11. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of accounts receivable and
costs and estimated earnings in excess of billings on uncompleted contracts.

To date, these financial instruments have been derived from revenues earned
primarily from banks and other financial institutions located in the United
States.  The Company performs ongoing credit evaluations of its customers and
generally does not require collateral.  The Company maintains reserves for
potential credit losses; historically, such losses have been insignificant and
within management's expectations.  At December 31, 1998, 23% of accounts
receivable was due from one customer.  At December 31, 1997, 22% of accounts
receivable was due from two customers.  For the year ended December 31, 1998, 
one customer accounted for 10% of total revenues.
<PAGE>   53
                CREDIT MANAGEMENT SOLUTIONS, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


12. OPERATING LEASES

The Company leases certain office space and equipment under non-cancelable
operating lease agreements which expire through 2003.  Future minimum lease
payments at December 31, 1998 for leases with initial terms of one year or more
consist of the following, excluding the former headquarters lease described in
Note 8:

<TABLE>
<S>                                                                      <C>
1999                                                                     $  1,588,075
2000                                                                        1,565,257
2001                                                                        1,593,216
2002                                                                        1,564,146
2003                                                                        1,532,434
Thereafter                                                                  7,335,083
                                                                         ------------
Total minimum lease payments                                             $ 15,178,211
                                                                         ============
</TABLE>

Rent expense under all operating leases for the year ended December 31, 1998,
1997 and 1996 was $2,359,666, $891,360 and $472,455, respectively.

13. SEGMENT REPORTING

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement No. 131"). Statement No. 131
supercedes Financial Accounting Standards Board Statement No. 14, Financial
Reporting for Segments of a Business Enterprise ("Statement No. 14") and
establishes new standards for the way public business enterprises report
selected information about operating segments in annual and interim financial
statements. It also established standards for related disclosures about
products and services, geographical areas, and major customers. Statement No.
131 is effective for financial statements for fiscal years beginning after
December 15, 1997. The Company adopted Statement No. 131 in 1998, and
accordingly the disclosures for all periods have been presented to conform to
Statement No. 131 requirements.

From inception through 1996, the Company operated predominantly in a single
segment. With the introduction of new products and services commencing in 1997
the Company has adopted, effective in 1998, a matrix oriented 'line of
business' organizational structure. Under this structure, products and services
have been organized into three distinct business lines, Credit Decisioning
Systems (CDS), E-Commerce and Service Bureau Alliances (SBA). The CDS business
line, which includes the CreditRevue software product and related services,
represents the Company's historical single segment and through 1996 was
responsible for virtually all of the Company's revenues and profits or losses.
The E-Commerce business line includes the CreditConnection, LenderLink, and
CreditOnline services. The SBA business line includes the OneScore product, the
Portfolio Monitoring service and the CreditRevue Service Bureau offerings.

The Company evaluates performance and allocated resources based on income from
operations before depreciation and amortization, corporate general and
administrative expenses. Assets are not apportioned by segment and are not
reviewed by the Chief Operating Decision Maker in reviewing segment performance.
The accounting policies used by the reportable segments are the same as those
used by the Company and described in Note 1 to the consolidated financial
statements. There are no intercompany sales or transfers. The segments are
managed separately by Business Line Managers who are most familiar with segment
operations. The following table sets forth information on the Company's
reportable segments:

     <TABLE>
     <CAPTION>

                  YEAR ENDED DECEMBER 31, 1998
     ----------------------------------------------------------------------------------
                                CDS        E-COMMERCE       SBA             TOTAL
     ----------------------------------------------------------------------------------
     <S>                     <C>           <C>          <C>               <C>
     REVENUES                15,257,783     1,275,020       369,971        16,902,774
     ----------------------------------------------------------------------------------
     SEGMENT PROFIT (LOSS)    4,792,685    (3,718,657)   (1,170,070)          (96,042)
     ----------------------------------------------------------------------------------
     </TABLE>


     <TABLE>
     <CAPTION>

                  YEAR ENDED DECEMBER 31, 1997
     -------------------------------------------------------------
                                CDS     E-COMMERCE       TOTAL
     -------------------------------------------------------------
     <S>                    <C>         <C>           <C>
     REVENUES               16,516,921     640,818     17,157,739
     -------------------------------------------------------------
     SEGMENT PROFIT (LOSS)   5,526,528  (4,105,753)     1,420,775
     -------------------------------------------------------------
     </TABLE>




     <TABLE>
     <CAPTION>

                  YEAR ENDED DECEMBER 31, 1996
     ---------------------------------------------------
                                  CDS          TOTAL
     ---------------------------------------------------
     <S>                     <C>             <C>
     REVENUES                 14,253,269      14,253,269
     ---------------------------------------------------
     SEGMENT PROFIT (LOSS)     4,094,355       4,094,355
     ---------------------------------------------------
     </TABLE>

A reconciliation of segment profit for all segments to income before income
taxes is as follows:

     <TABLE>
     <CAPTION>
     -----------------------------------------------------------------------------
                                                1998        1997         1996
     -----------------------------------------------------------------------------
     Operating profit:
     -----------------------------------------------------------------------------
      <S>                                <C>            <C>            <C>
       Total segment profit (loss)           (96,042)    1,420,775      4,094,355
     -----------------------------------------------------------------------------
       Corporate, general and
        administrative expenses           (8,916,176)   (5,672,292)    (3,744,600)
     -----------------------------------------------------------------------------
       Depreciation and amortization      (1,321,105)     (719,329)       (80,040)
     -----------------------------------------------------------------------------
       Net interest income                   763,292     1,232,203        226,740
     -----------------------------------------------------------------------------
       Income (loss) before income taxes  (9,570,931)   (3,738,643)       496,455
     -----------------------------------------------------------------------------
     </TABLE>

Substantially all of the revenue and assets of the Company's reportable segments
are attributed to or located in the United States.